ii view: Aviva details dividend windfall for shareholders

The big surprise for shareholders and the City today was the insurer's significant increase in its annual dividend. We assess prospects. 

Full-year results to 31 December 2021

• Income up 6% to £33.18 billion
• Operating profit from continuing operations down 10% to £1.63 billion
• Pre-tax profit of £801 million, down from £1.81 billion
• Final dividend up 5% to 14.7p per share
• Total dividend for the year up 5% to 22.05p per share

Chief executive Amanda Blanc said:

“In 2021, Aviva showed we've got what it takes to exceed customer expectations, execute our strategy at pace, and deliver sustainable growth.

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“We've made substantial progress in my first full year as CEO and I'm very proud of what we've achieved together. I'd like to thank our people for really going the extra mile during an incredibly challenging period.

“We've focused our portfolio. We're financially strong. Now we can draw a line under these elements of our strategy and focus on delivering Aviva's promise: realising the full potential of this business and meeting our clear commitments to customers and shareholders.”

ii round-up:

Life and general insurer Aviva (LSE:AV.) today announced the return of £3.75 billion to shareholders following the sale of various overseas businesses. That’s towards the upper end of analyst expectations. 

The return comes alongside a £1 billion share buyback programme and is being paid in conjunction with a B Share scheme and planned consolidation of shares held in order to keep the value of holdings level. 

Avivia shares rose by more than 2% in UK trading to leave them up by over 90% since pandemic market lows in March 2020. Shares for rival Legal & General (LSE:LGEN) are up by a similar amount, while Asian operator Prudential (LSE:PRU) is up over 30%.

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Aviva also remains on track to deliver £300 million of cost savings by 2022, with management today expanding the target to £400 million inflation adjusted by 2024. 

The final dividend is raised to 14.7p per share from 14p a year ago. But factoring in the B Share scheme and consolidation, Aviva estimates a dividend of about 31.5p in 2022, 40% more than last year, then 5% in 2023. After that, the idea is to grow dividends per share by low to mid-single digits. 

Operating profit from continuing operations fell 10% from 2020 to £1.63 billion, broadly in line with City hopes, hindered by lower profits in annuities and equity release. 

Its core UK & Ireland Life business reported a one-fifth jump in sales, helped by expanding retirement related business. However,  improvement in Savings & Retirement and Protection & Health was more than offset by lower profits in Annuities & Equity Release. General Insurance premiums rose 6% to £8.8 billion, the highest in over a decade. 

The company also announced the purchase of national independent financial advice firm Succession Wealth for £385 million. A first-quarter trading update is scheduled for 18 May. 

ii view:

Tracing its history back to 1696, Aviva today provides savings, retirement pension products and insurance to around 18 million customers. Goals to become a simpler, more competitive, and more commercial company have headed its recent agenda. Overseas businesses lacking the relevant scale have been sold, with sharper focus now on the UK, Ireland, and Canada.  

For investors, geographical diversity has been reduced, with profits from insurance operations vulnerable to natural events. On the upside, costs are still being tackled and the shares offer an attractive dividend yield.

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In all, and with management now better focused, group finances strengthened, and greater efficiency being achieved, income seeking investors are likely to remain interested in Aviva. 

Positives: 

• Cost cutting programme
• Attractive dividend yield (not guaranteed)

Negatives:

• Loss of geographical diversity
• General insurance is subject to events outside of management’s control

The average rating of stock market analysts:

Buy