How have our top FTSE 100 companies been performing over the past decade, through one of the worst economic downturns in memory and a bad time for the stockmarket?
That’s the question I’ve been asking recently, and today I’m turning my attention to insurer Aviva (LSE: AV) (NYSE: AV.US), which suffered a serious crash in profits during the financial crisis.
Stretch… snap!
Like some of its competitors, Aviva had been wooing investors with fat dividend returns — yields exceeded 6% at their peak. But when earnings per share (EPS) slumped in 2009, slid further in 2010, and then collapsed in 2011, something was going to break.
The problem was, those dividends were nowhere near covered by earnings and were badly overstretched. The inevitable happened and the dividend was slashed in mid-2012. From a payment of 26p per share in 2011, Aviva handed out only 15p in 2013.
The shares had a tough couple of years as a result, but have been recovering since early 2013. But the big question is what has happened over ten years?
No price movement
The price has been volatile, reaching above 850p in 2007 before the crash, and it dipped to around 160p during the worst of the crisis. Overall, Aviva shares have lost a shade more than 5% over 10 years, so £10,000 invested a decade ago would be worth just £9,488 today. What a lousy investment!
But that’s without dividends. Once the annual cash handout is added, that £10,000 investment goes from a 5% loss to a 40% profit!
You’d have earned a total of £4,719 in dividends, which easily drowns out that £512 loss in shares, for a result of £14,207.
Reinvestment
Now, that’s keeping the cash, so what would reinvesting it instead have done for the bottom line?
It would have added an extra £2,140 to take your total to £16,347, for an overall 63% gain, that’s what!
That’s not up with the best, but Aviva was in the thick of the financial crisis and the period was one of the worst for shares in recent decades.
As for the next decade, I’d expect Aviva to do better than that (though there are still risks, obviously), as I really don’t see the kind of tough conditions combined with short-sighted management that characterized the last one.
And you’d be starting out the decade with 3,000 Aviva shares rather than the 1,800 you’d have had ten years previously.