A costly dividend from Wilson’s reforming zeal

 
Marc Sidwell
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BOTTOM LINE

DEEP CUTS to dividends alongside a huge writedown on the sale of its US business sent Aviva’s shares plunging more than 12 per cent yesterday, as the insurer lost yet another reason to buy into its future. But for the brave who aren’t looking for quick returns, this may provide an opportunity to get in cheap.

Aviva clearly doesn’t think its top team is performing spectacularly – there will be no executive director bonuses for 2012 or pay rises in 2013 – but on underlying operating profit, with the US disposal set aside, Aviva turned in a relatively respectable £1.776bn in 2012, below its £1.857bn profit in 2011 but hardly a disaster, with much of the shortfall explained by adverse currency movements.

Meanwhile the insurer continues to move out of less profitable areas such as America and limit its exposure to the worst of the Eurozone’s woes.

Crucially, Aviva is under new management: the highly experienced New Zealander Mark Wilson, who played a critical role at AIA around its Hong Kong flotation in 2010. Wilson appears to accept that the Aviva he inherited needed radical surgery, and looks willing to make tough calls if necessary.

Still, however gutsy, a 44 per cent cut to the dividend is hard to ignore, especially when rival Legal and General was raising its dividend by 20 per cent. And this was not a one-off cut. The 2013 dividend will also be affected by the rebasing. Yet next year’s dividend is likely to far exceed 2012’s 9p shock, with a value at or just below 15p anticipated.

Aviva can hardly claim to be at the top of its class. But it has a strong position in the UK and Europe, a leader with vision and a sense of the scale of the change needed to bring things around.

Those who stick around through the current pain will be those who see growth around the corner. As with governments trying to wean themselves off a period of binge spending, it is much easier persuading people to sign up to follow you with a plan for growth than just the prospect of enduring an austerity diet.