LONDON — I’m looking at some of your favorite FTSE 100 companies and examining how each will deliver their dividends.
When the company released its annual results for 2001, the board held the dividend at the previous year’s 38 pence, but announced that it intended to “rebase” (“cut” in plain English) the 2002 dividend by 39% to 23 pence.
Management said the rebasing was to a level from which the company could pursue “a progressive policy of growing dividends.” The target was annual growth of approximately 5% with dividend cover in a range of 1.5 to 2.0 times operating earnings after tax.
The board described its aim as: “To position the dividend at a sustainable level from which it can grow.”
The board said its dividend policy “remains unchanged,” and that the rebased 2009 dividend of 24 pence was 1.8 times covered by operating earnings after tax — “which is within our 1.5 to 2.0 times dividend cover target range.”
Dividend history: Cut #3
It wasn’t long before Aviva Plc (ADR) (LSE:AV) (NYSE:AV) cut the dividend yet again. With the arrival of a new chief executive, the board slashed the final dividend for 2012 by 44% and said it expects a reduction of the same percentage for the next half-year payout.
Management said that going forward: “Aviva will have a progressive dividend policy, with reference to growth in cashflows and earnings.”
In contrast to the past, Aviva’s new dividend policy is vague in the extreme. While it aims to be”progressive,” there is no explanation at all of how the dividend will be determined in relation to cash flows and earnings beyond “with reference to.”
In effect, whatever the board decides to do with the dividend in future could be claimed to be in line with the dividend policy. It seems to me that a comment of Warren Buffett’s on fund managers is equally applicable here:
I believe that those entrusted with handling the funds of others should establish performance goals at the onset of their stewardship. Lacking such standards, managements are tempted to shoot the arrow of performance and then paint the bull’s-eye around wherever it lands.
At a current share price of 330 pence, Aviva is on a yield of 4.4% based on a 14.6 pence payout derived from the company’s last final dividend and guidance on the next interim.