- Total dividends of 21p per share for 2020 likely
- Policy follows cancellation of final 2019 distribution
Amanda Blanc is not wasting any time. In her first five months as chief executive of Aviva (AV.), the former Association of British Insurers chair has announced the sale of businesses in Singapore and Italy for a combined £2bn, and put the group’s joint ventures – alongside other subsidiaries in France, Poland and Italy – all in the shop window.
A cost reduction drive is also bearing fruit. Controllable overheads are down 5 per cent to £2.8bn for the first nine months of 2020, while the group is on track to exceed a £150m savings target for the full calendar year. Since her appointment, Ms Blanc has also presided over a £65m drop in expected Covid-19-related general insurance claims, thanks in large part to lower claims frequency and lower economic activity.
Yet at some point, the new boss had to address the most sensitive of issues for many Aviva shareholders: what to do about the dividend.
After walking back the payment of last year’s final 21.4p-a-share distribution in April, the insurer announced a second interim dividend of 6p for 2019 alongside August’s interim results. That was paid on 24 September, but until this week investors had no confirmation as to how much income they might expect under Ms Blanc’s new regime - and when payments might restart.
A third quarter update set out the chief executive’s intentions. An interim dividend of 7p has now been declared for 2020, and will be paid to ordinary shareholders on 21 January. Aviva then expects to announce a 14p distribution alongside full-year results in March, subject to board approval.
Thereafter, shareholders can expect annual dividend growth “in the low to mid-single digits”, thereby matching a recent pledge from life insurance rival Legal & General (LGEN).
Investors also now have a clear sign that special dividends could feature in the coming years. Though reducing debt remains the priority, the group will consider returning excess capital above a Solvency II cover ratio of 180 per cent to shareholders “over time”.
As of 30 September, the ratio stood at 195 per cent, which is also ahead of the higher-yielding L&G and M&G. Should the group sell off its non-core international arms at a premium to net assets – as it has managed with sales to date – capital is likely to build.
As we recently noted, life insurers have proved far more resilient to this year’s pandemic fallout and the longer-term low interest rate environment than many expected. Aviva is no exception to this, but still trades at a 21 per cent discount to net assets. Unwinding the conglomerate discount will take time, but Ms Blanc has made a solid start. Buy at 325p.
Last IC View: Buy, 292p, 24 Sep 2020
