The stock market crash has played havoc with FTSE 100 dividend stocks, with more than half the index scrapping or suspending shareholder payouts. Now there are signs of a fightback. Direct Line Insurance Group restored its dividend on Tuesday, and insurer Aviva (LSE: AV.) followed suit this morning.
The Aviva share price jumped almost 5% as investors celebrated a second 2019 interim payout of 6p per share. Many were miffed when it was dumped in April, especially after fellow insurer Legal & General Group chose to maintain its generous shareholder payouts.
It seems management at the FTSE 100 group shared their unease. Today, new CEO Amanda Blanc surprised analysts and delighted investors. Aviva’s share price shot up as a result, even as the index as a whole fell amid renewed fears of a second stock market crash. It wasn’t all good news today though.
Aviva’s share price struggles
Aviva reported a 29% drop in pre-tax profit to £1.07bn for the six months to 30 June, and current uncertainties will hit shareholder payouts. The current payout will be reviewed in Q4. Future payouts will be less generous, as the group prioritises “a sustainable pay-out and lower levels of debt.” Don’t expect a return to the high-income days of yore.
Aviva blamed today’s drop in profits on higher general insurance claims due to coronavirus and bad weather, plus additional expenditure on community support initiatives.Â
These are tough times for almost every FTSE 100 company, even without a second stock market crash. Much now depends on whether chancellor Rishi Sunak extends his furlough support beyond October to support consumers, businesses and the economy.
Aviva’s annuities business and Canadian operations are thriving, but the group isn’t immune to pandemic misery. Today, it warned that economic headwinds and capital market volatility are likely to persist, and “any recovery in customer activity is likely to be gradual.” This means “growth and profitability targets will be harder to deliver.”
Stock market crash survivor
Blanc has only been in the job one month and these results give her an opportunity to drive through a much-needed overhaul. The Aviva share price has idled for years. It stood at 380p exactly 10 years ago, 22% higher than today’s 295p.
Investors who were pushing her predecessor to split the group into its life and general insurance units, face further disappointment. Today, Blanc announced her intention to reshape the group, reducing its focus on Asia and Europe, where it has a large French business. Aviva’s overseas operations look set to bear the brunt of change.
Investors can at least expect asset disposals in pursuit of this goal. With luck, this could fund special dividends to reward their loyalty.
It’s good to see companies like Aviva restore dividends so quickly after the traumatic stock market crash in March. The FTSE 100 group’s overhaul will take time, so only buy if you plan to hold for the long-term.