Back in 2013, one of Mark Wilson’s first acts at struggling Aviva (AV.) was to slash the insurer’s final dividend by 44% to 9p in order to reallocate capital where it was needed most after £3 billion in full-year losses.
Five years later, the insurance giant is growing faster than expected and looking to be awash with cash as Wilson hiked the 2017 final dividend by 20% to 19p for the fourth consecutive year of double-digit growth.
The highly-regarded CEO is also promising further shareholder rewards this year, with more than £500 million set aside from £2 billion in excess cash as Aviva further highlights its credentials as an income play.
On top of this, the company will increase its dividend pay-out ratio to between 55% and 60% of operating EPS by 2020, having achieved its target for a ratio of 50% when it raised the total dividend by 18% to 27.4p with today’s results.
Source: interactive investor Past performance is not a guide to future performance
The ambitions reflect a Solvency II cover ratio of 198%, which is well above the company’s 150% to 180% working range. When factoring in 2019, the insurer plans to deploy £3 billion of excess cash over the next two years.
Wilson said: “Our objective is to use surplus cash to deliver sustainable benefits to our shareholders.”
This may include share buy-backs or special dividends, but Aviva also wants to repay £900 million of expensive hybrid debt so it can save £60 million in interest payments. Another £600 million is earmarked for bolt-on acquisitions.
It’s been an impressive turnaround in fortunes from Wilson, even if it appears the share price performance is struggling to match the outlook.
The price slumped to 315p after Wilson’s 2013 dividend cut but is only now at 500p after a disappointing year to date and after falling as much as 2% in the wake of today’s results. The company’s current and projected dividend yield is 4.8% and 5.9% respectively.
UBS said the latest results were in line with expectations, with operating profits up 2% to just above £3 billion.
Wilson, who vowed in 2013 to cut complexity and make Aviva as “predictable as a Swiss clock”, said the process of simplifying the business was now complete as the company looks to focus on eight major markets and six strategic investments.
He added that the UK division, which is still Aviva’s largest, was a “dependable and growing business” after lifting sales, market share and profit.
In UK insurance, operating profit increased 13% to £2.2 billion due to growth across most of product lines. In UK long-term savings, operating profit rose 30% to £185 million reflecting higher assets under management.
Richard Hunter, head of markets at interactive investor, said disappointments were few and far between in the results, but noted that possible negatives included a slightly softer general insurance operating profit, an uptick in operating expenses and a “disappointing”contribution from Canada.
But overall, he said that Aviva had delivered a sparkling set of numbers: “In terms of prospects for the company, there is little question that the market is on board with the story, with the general consensus coming in at a strong buy.”
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