Nomura demands 25% cut in dividend to boost yield

Aviva shares fell 6¼p to 331p yesterday after Nick Holmes, an analyst at Nomura, urged the insurer to cut this year’s dividend by as much as a quarter.

Holmes said that Aviva refusal to cut it dividend left it with a higher yield than any other large-cap London stocks and said that it could restore investors’ confidence by cutting the payout. He believed that Aviva’s mounting pension burden and lower investment returns meant that it would not generate enough cash to cover this year’s promised payout.

“If markets are more stable from 2010 onwards, then Aviva will have little problem in cash-funding its dividend. A 25% dividend cut this year would leave it with a 7% yield, which is among the highest in the sector and would, we think, be welcomed by investors.”

He cut his forecasts but reiterated “buy” advice. “We don’t think this poses a threat to solvency.”