Insurer Aviva set to raise dividend payout

Aviva’s fund arm was one of three to suspend its UK commercial property fund this week, in the first sign of markets seizing up since Britain’s vote to exit the EU sent asset prices into a tailspin.

Ahead of a capital markets day Aviva, which employs around 2,000 people in York and 1,300 in Sheffield, said it plans to increase the proportion of earnings per share paid out in dividends to 50 per cent in 2017, up from 42 per cent in 2015.

Chief executive Mark Wilson said: “Aviva’s fundamentals are sound. Our balance sheet is strong and resilient and we are a simpler, focused group with excellent franchises.

“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.“

He said that a sustainable and growing dividend is paramount and the firm plans to increase the payout ratio to 50 per cent in 2017.

“The UK is an attractive market, and Aviva has excellent franchises and an unrivalled brand. As the UK’s leading composite insurer, Aviva has advantages in terms of cost, capital and customer engagement. We expect the UK to deliver cash-flow and growth for our shareholders,” he said.

An Aviva spokesman pointed out that the group’s £1.8bn property fund represents only a small part of the firm’s assets under management.

Mr Wilson said earlier this year the firm could give cash back to shareholders, after it beat forecasts with a 20 per cent rise in 2015 operating profit.

Aviva said on Wednesday it is targeting mid to single digit operating profit growth in the medium term, and the spokesman said handing cash back was a medium-term objective.

It also said it is looking to generate £7bn in cash between 2016 and 2018.

Aviva’s shares, which have fallen 16 per cent from pre-vote levels, closed down 0.16?? per cent, slightly outperforming the FTSE 100 index.

Analysts at JPMorgan Cazenove said Aviva’s statement on Wednesday had sent a “reassuring message”.

Analyst Eamonn Flanagan at Shore Capital said: “It is important to note that Aviva’s operations in mainland Europe are locally incorporated and regulated thus obviating the need for passporting.

“The stock has undoubted income attractions, with the news on the reduced dividend cover likely to be taken well this morning.

“We view the post-Brexit sell-off across the quoted life companies as materially overdone with all of the players offering decent upside potential on an absolute basis once the dust settles and some sense of order emerges.”