Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

How Aviva Plc (ADR) (AV) Will Deliver Its Dividend

LONDON — I’m looking at some of your favorite FTSE 100 companies and examining how each will deliver their dividends.

Today, I’m putting insurance group Aviva Plc (ADR) (LSE:AV) (NYSE:AV) under the microscope.

Aviva Plc

Dividend history: Cut #1
Aviva Plc (ADR) (LSE:AV) (NYSE:AV) has cut its annual dividend no fewer than three times since the turn of the millennium.

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.

For the five years to 2007, Aviva Plc (ADR) (LSE:AV) (NYSE:AV) delivered dividend growth of: 5%, 5%, 7.5%, 10%, and 10%. For 2008, the dividend was held at the previous year’s level of 33 pence.

Dividend history: Cut #2
Aviva Plc (ADR) (LSE:AV) (NYSE:AV) rebased the dividend again during 2009: the half-year dividend was lopped by 31% to 9 pence and the final dividend by 25% to 15 pence.

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.”

Going forward
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.

Summing up
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.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.