British Insurer Aviva Plc Aims to Increase Payout Ratio to 50%
Investors have soured on European stocks after the recent U.K. Brexit referendum, but one company is doing its best to impress investors.
On Wednesday, Aviva Plc (NYSE:AV) announced plans to raise its dividend payout ratio to 50% by the end of 2017. Executives also hinted that more share repurchases could be on the way if industry conditions warrant such a move. (Source: “Aviva Plc Capital Markets Day Presentation Slides,” Aviva Plc, July 6, 2016.)
“Aviva’s fundamentals are sound. Our balance sheet is strong and resilient and we are a simpler, focused group with excellent franchises,” said Mark Wilson, chief executive officer of Aviva. “This is a strong foundation from which to grow profits, cash-flow and dividends over the coming years. Although it is too early to quantify the precise impact of Brexit, we are confident we can continue to grow.” (Source: “Aviva Plc Capital Markets Day,” Aviva Plc, July 6, 2016.)
The announcement is refreshing for shareholders. England’s vote to exit the European Union has plunged the continent’s financial markets into chaos. Aviva’s asset management arm has even been forced to halt investors from withdrawing money from the company’s property trusts, citing “extraordinary market circumstances” and “a lack of immediate liquidity.” (Source: “Brexit Turmoil Sees Dealing in Second U.K. Property Fund Suspended,” The Wall Street Journal, July 5, 2015.)
The promised dividend hike is a strong signal of confidence. Aviva’s management team likely would not have hinted at future increases unless it was optimistic about the business’s future. When a company projects dividend increases several years in advance, it says a lot about how executives see the future unfolding.
Of course, any dividend increase is not official until it has been approved by the company’s board of directors. However, by making its intentions public, Aviva’s management team is putting its credibility on the line. Shareholders will be closely watching for further details in the company’s upcoming quarterly report.