Here at the Fool, we advocate the idea of long-term investing, and by and large this approach is pretty successful — but there are exceptions, and accident-prone insurer Aviva (LSE: AV) (NYSE: AV.US) is definitely one of them.
If you’d invested £10,000 in a FTSE 100 tracker 25 years ago, in November 1988, it would be worth around £37,000 today, without dividends.
If you’d invested the same £10,000 in Aviva’s predecessors 25 years ago, it would be worth just £12,400, excluding dividends.
Aviva’s dividends haven’t made up for the long-term pain, either, as the firm is a repeat offender when it comes to dividend cuts, as these figures show:
| Year | Percentage dividend cut |
|---|---|
| 1994 | -33% |
| 2002 | -14% |
| 2003 | -28% |
| 2009 | -15% |
| 2013 | -43% |
It’s not a very impressive record for income investors, especially when you compare it to peer Legal & General, whose dividend has tripled over the same period.
Of course, most of this is ancient history, isn’t it? Aviva’s share price has risen by 23% over the last year, comfortably outperforming the FTSE 100, and the firm’s shares still offer a reasonable 3.4% yield.
What’s more, Aviva’s new CEO, Mark Wilson, is doing an impressive job of refocusing the company and improving cash flow, and the firm recently confirmed the $2.6bn sale of its US business, strengthening its balance sheet still further.
What could possibly go wrong?
As a shareholder, I hate to say it, but there are a few clouds on the horizon.
The value of Aviva’s new life insurance and pension sales fell by 5% during the third quarter, while its long-term savings sales fell by 2%. Investment sales were up by 9% — as you’d expect with a booming stock market — but this trend could easily reverse if the FTSE undergoes a correction over the next few months.
Aviva’s £8.4bn UK property portfolio isn’t all that healthy, either. According to the firm’s 2013 interim results, it currently has £1.3bn of negative equity at current property prices, and a further £1.6bn of loans where the loan-to-value ratio is between 95% and 100%.
These risky loans were made before the financial crisis, but many of them relate to retail property in the north of England, where property prices haven’t rebounded as they have in the south — so there is no guarantee that Aviva’s negative equity problems won’t get worse.
Sell Aviva?
Aviva’s current property problems aren’t unique in the UK market, and in my view, the company’s medium-term prospects are quite good.Â