Dividend growth poised to ignite
Avivas appeal for income hunters has taken a severe bashing in recent times, with the drop-down effect of the 2008/2009 banking crisis on earnings and the firms subsequent transformation plan having prompted payout cuts in each of the past two years.
But with its restructuring programme well underway and its earnings outlook having turned the corner City analysts expect growth of 118% and 9% in 2014 and 2015 respectively Avivas previous reputation as a generous dividend payer looks set to return with some vim.
Indeed, current forecasts point to an inflation-smashing 11% rise in the full-year payment this year, to 16.7p per share. And a further 16% rise to 19.4p is pencilled in for 2015.
Although this years figure creates a dividend yield of just 3.1% falling short of the FTSE 100 forward average of 3.3%, as well as a corresponding reading of 4.4% for the complete life insurance sector next years terrific rise drives the yield to a much-improved 3.6%.
Revving up the readies
And I believe that Avivas considerable cash-generative qualities should keep shareholder payouts rising at such an impressive clip well into the future.
The insurance powerhouse saw incoming cash remittances jump 7% during January-June to 612m, driven by surging new business volumes and ongoing streamlining work. And Aviva is working hard to raise its remittance ratio and plans to push this to 80%, up from 72% as of last year.
Furthermore, the business is also locked in an ongoing streamlining programme to further bolster the balance sheet, with high-profile divestments over the past year including the sale of its Aviva USA subsidiary last autumn as well as a string of European divisions. Indeed, just last week Aviva offloaded it stake in CxG Aviva to Novacaixagalicia Banco for 226m following a favourable legal decision in Spain.
As well as getting dividends moving in the right direction once more, the firms strong capital base is also being used bolster its transformation programme, which includes a greater emphasis on digital development, as well as allowing it to invest heavily in UK infrastructure.
Last December Aviva pledged to piggyback the British economic recovery by ploughing 500m into a vast array of domestic bricks and mortar projects, and just last month bought a further 11.4MW worth of residential solar systems from Zouk Capital, Avivas second such purchase from the business.
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Royston does not own shares in Aviva.