Stockbroker re-iterates ‘buy’ recommendation as it believes dividend is sustainable
Aviva risks “alienating many shareholders” if the current restructuring programme prompts the insurer to cut its 26p dividend, says stockbroker Investec.
Investec analyst Kevin Ryan said that his firm’s analysis had concluded that the current dividend was sustainable, and so it has re-iterated its ‘buy’ recommendation on Aviva’s stock.
However, he added: “If management deems that a cut is in order, we believe a cut of at least 30% would be needed to generate a sensible level of savings.
“Such a scenario would, we believe, involve the company having to explain how the savings would enhance shareholder returns in the short term.”
Ryan contends that the alternative to cutting the dividend is to ensure that the slimmed-down Aviva becomes fitter and is better able to generate increasing volumes of cash.
Aviva embarked on its restructuring programme in July after chairman John McFarlane temporarily took the helm following the departure of chief executive Andrew Moss.
The company has made a number of disposals – the largest to date being the sale of its US life and annuities division at the end of 2012.
Ryan contended that Aviva has now completed the bulk of its disposals. He said: “There are likely to be further small sales but these are unlikely to be financially significant. The next leg of the story is to improve the performance of those remaining operations.”
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