The last few weeks many of the dividend paying companies that we follow have released their results and dividend updates.
Several insurance companies, such as Prudential, Standard Life and Legal & General announced welcome increases in their dividends, while Aviva and RSA Insurance Group surprised shareholders with deep cuts in their dividends.
For many people the workings of a typical insurance company is rather a mystery. However, if run properly insurance companies should be cash machines and be able to sustain increasing dividends. However, not all insurance companies are the same
RSA Insurance Group
RSA Insurance Group announced a rather unexpected dividend cut of 33 percent, with the final dividend of 3.90 pence going ex-dividend on 3 April and payable on 24 May. Last year the final dividend was 5.82 pence. The total for the year is 7.31 pence which is down 20.2 percent on last year’s 9.16 pence. The new ‘rebased’ 2013 dividend forecast is 6.3 pence
As it swung into the red in 2012, following a £3.3bn write-down on a disposal in the USA, Aviva slashed its final dividends by almost 44 percent to 9 pence per share (compared to 2011: 16 pence), going ex-dividend on 20 March and payable on 17 May. This makes for a full-year dividend 19 pence per share compared to 26 pence a year earlier. The new rebased dividend 2013 forecast is 16 pence.
The reasoning behind the dividend cut is to reduce leverage and increase retained earnings, ensuring that dividends are covered by earnings and cashflows, while the company is also removing the dilutive scrip dividend in the hope that this will improve earnings per share.
It has taken the Board some years to get to this view, as Aviva can be regarded as something of a ‘serial dividend cutter’ as I report in this article.
Just days after the firm disappointed the City with its results for 2012, Mark Wilson, Aviva’s newly-appointed CEO, bought his first stake in the. Wilson acquired 150,000 ordinary shares at 321.1113p each for a total of £481,667, his total holding since joining Aviva on January 1st.
One final bit of good news: in the first major announcement since his appointment, Wilson said that the company’s overall situation did not warrant bonuses for executive directors for 2012 or pay rises for 2013.
In contrast to the insurers Aviva and RSA, which I reviewed above, Standard Life released annual figures to 31 December with some very good dividend news.
Referring to substantial growth in profits and record assets under management together with a big rise in cash generation the final dividend is 9.8 pence going ex-dividend on 3 April and is payable on 21 May. That makes the year’s total of 14.7 pence, up 6.5 percent on last year and well ahead of inflation.
In addition, Standard Life is paying a ‘special dividend’ of 12.8 pence with the same ex-dividend and payment dates as the final dividend. Thus shareholders, on the register before 3 April, can expect a total dividend on 21 May of 22.6 pence. The 2013 dividend forecast is 15.6 pence.
Not to be outdone by Standard Life, Britain’s biggest insurer, Prudential raised its final dividend by a bigger-than-expected 16 percent as net profits surged 55 percent last year after continued strong growth at its flagship Asian operations. Final dividend is 20.79 pence, going ex-dividend 27 March and is payable 23 May. The dividend 2013 forecast is 28.5 pence
The bigger dividend payout, reflected a 25 percent jump in Prudential’s 2012 operating profit to £2.53 billion. Prudential has avoided the economic turbulence afflicting its European competitors thanks to a strong focus on fast-growing Asia, the source of nearly half its sales these days.
British American Tobacco
British American Tobacco released its 2012/13 results including a final dividend of 92.7 pence going ex-dividend on 13 March and payable on 8 May. This makes a total for the year of 134.9 pence, up an inflation beating 6.6 percent on the 126.5 pence paid last year. The 2013/14 dividend forecast is for a further increase to 147.2 pence.
Unfortunately, group debt rose £600m to £8.5bn partially due its £1.25bn share buyback programme during the year. Uncomfortably, gearing rose from an already high 97 percent to an even higher 113 percent due also to a decline in net assets. The group’s intention for this year is to spend another £1.5bn in 2013 on share buybacks likely to increase gearing even further.
Nevertheless, British American Tobacco is one of UK’s Dividend Champions, and using a simple investment strategy investors are able to get an increasing bit of its increasing dividend pay-out. Read this article how you can use British American Tobacco’s dividends to exponentially grow your returns.
BAE Systems issued annual figures disclosing a final dividend of 11.7 pence going ex-dividend on 17 April and payable on 3 June. For the year that makes a total of 19.5 pence modestly up on last year’s 18.8 pence. Analysts’ 2013 dividend forecast is 20.4 pence. We are not so sure about that.
While sales were down 7 percent, BAE Systems surprised with holding net cash of £387m by the year end – a remarkable turn round from the net debt position of £1,439m and 34% gearing of a year earlier.
While the group is expecting significant cash expenditure in 2013, principally for the production costs of various aircraft contracts, BAE Systems also announced that it intend to spend up to £1bn in the next three years on share buybacks, a process that increases both the absolute level of debt and the gearing ratio, thereby increasing risk to the business and its shareholders.
First half year was a difficult one for BHP Billiton with revenues falling by 14 percent and operating cash flow down 48 percent. Net debt rose to $30.4bn from $23.6bn at the 30 June 2012 year end with a rise in gearing to 45 percent from 36 percent.
Earlier in December, I released an article on BHP Billiton stating that its diversity, in comparison to its competitors, guarantees future dividend increase. You can access the article Here. However that diversity may now be somewhat under threat as BHP Billiton has decided on a major divestment program as I explain in this article
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