Aviva (LSE: AV) (NYSE: AV.US) shares rose by nearly 5% on Thursday morning, after the firm revealed a solid set of 2014 results.
Shareholders were cheered by a 30% increase in the final dividend, taking the total payout for 2014 to 18.1p per share, a 20% rise on the 2013 payout of 15p.
However, 18.1p is a lot less than the 33p paid by Aviva in 2008, or the 26p paid in 2011. Aviva has a terrible record of dividend cuts can we now trust the firms progressive payout policy, or should we look elsewhere?
On possible alternative is Admiral Group (LSE: ADM), the motor insurance firm thathas developed a reputation for very generous payouts.
Admiral also issued its 2014 results on Thursday, in which the firm announced a full-year dividend of 98.4p per share, which gives a whopping 6.6% yield double the 3.3% on offer at Aviva.
Which firm is the better buy for income investors?
Contrasting results
Car insurance premiums have been falling in the UK, and the motor insurance sector went through a soft patch last year: Admirals pre-tax profits fell by 4% and turnover fell by 3%, despite a 10% rise in customers.
In contrast, Avivas recovery in the hands of chief executive Mark Wilson appears to be gaining momentum. Mr Wilson has been focused on reshaping the group to deliver strong cash flow and growth, and appears to be succeeding.
In 2014, the value of new business to Aviva rose by 15% to a record 1,009m, while Avivas excess cash flow a measure of free cash flow generated by Avivas operating businesses rose by 65% to 692m. Thats equivalent to 23p per share, and fully covers the 18.1p dividend payout.
Foolish final thought
Admirals chunky 6.6% headline yield is attractive, but the groups dividend policy is for the total payout to reflect after-tax profits and these are expected to fall by around 10% in 2015.
In my view, Admiral shares may now drift lower: trading on almost 16 times 2015 forecast profits and with a dividend cut likely this year, theres no reason to expect them to go higher.
In contrast, I believe Aviva is a far more appealing buy today: the shares trade on a 2015 forecast P/E of 11 and offer a rising dividend payout underpinned by ongoing earnings growth.
However, Aviva’s track record of dividend cuts may put you off investing in the insurer: it’s certainly a potential red flag.
Indeed, a poor track record of dividend growth is one of five key warning signs highlighted by the Motley Fool’s dividend experts in “How To Create Dividends For Life“, an exclusive new report.
These five golden dividend rules could save you from costly losses on income stocks, and I’d urge you to read this report today.
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Roland Headowns shares in Aviva. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
