Aviva Finals (part one of four)

[idpickering]

In 2017, Aviva delivered growth in profits, in dividends, in capital and in cash. Aviva grew operating earnings per share by 7% and our full year dividend by 18%, the fourth consecutive year of double-digit dividend growth.

Our largest market, the UK, has gone from strength to strength, growing sales, market share and profit. For Aviva, the UK is a dependable and growing business.

Aviva has broad-based growth, with six of our eight major markets delivering double-digit profit improvement. We now have a collection of strong and growing businesses.

This year, we expect to deploy £2 billion of excess cash, including £900 million in debt reduction, in excess of £500 million of capital returns to shareholders and about £600 million for bolt-on acquisitions.

We continue to invest in our businesses and in particular on priorities such as digital to make our products and services easier for our customers.

Aviva is now a simpler, stronger group and we are growing. Our strategy is paying dividends.




Profit

· Operating EPS1,2 up 7% to 54.8 pence (2016: 51.1 pence)

· Operating profit3 up 2% to £3,068 million (2016: £3,010 million)

· Operating profit from eight major markets excluding divestments up 6% to £3,508 million (2016: £3,300 million)

· IFRS profit after tax £1,646 million (2016: £859 million)


Dividend

· 2017 total dividend per share up 18% to 27.4 pence (2016: 23.3 pence)

· Dividend payout ratio 50%, 2017 target delivered

https://www.investegate.co.uk/aviva-plc ... 00020478H/

Part 2 - https://www.investegate.co.uk/aviva-plc ... 00070466H/

Part 3 - https://www.investegate.co.uk/aviva-plc ... 00080468H/

Part 4 - https://www.investegate.co.uk/aviva-plc ... 00100469H/

[idpickering]

The Aviva CEO is being interviewed on Bloomberg shortly, for those interested.

Ian.

[idpickering]

I don't hold these currently, but have in the past, and have been tempted to return them to my HYP fold recently. I thought these weren't bad results, but the market thinks differently it seems, as they're down over 2 % on opening.

Ian.

[daveh]

After rather a long search through the 4 RNS's and the company website:

Final dividend 19p paid 17th May ex date 5th April Record date 6th April.

[tjh290633]

I see that, as seems to be traditional, the shares have fallen by 2% after the announcement of the 18% dividend increase. Probably some bright spark have discovered a word like "challenging" somewhere in those four RNSs.

TJH

[Arborbridge]

Aviva - one of my long-term naughty children, seems to be continuing its progress. Perhaps time for a top up. I'll publish my latest table as a separate post, just for interest.

Arb.

[pendas]

The present share price is around that of Jan 1995 and the 2018 dividend payout is less than that of 10 years ago.

This hold forever philosophy has some questions to answer!

[monabri]

I see that, as seems to be traditional, the shares have fallen by 2% after the announcement of the 18% dividend increase. Probably some bright spark have discovered a word like "challenging" somewhere in those four RNSs.

TJH

I've noticed that too! The use of the word "challenging" seems to lead directly to a mark down.

Putting this aside - It is interesting from a HYP point of view to compare the results with LGEN.

Aviva increased annual dividends by 18% , LGEN 7%. I was a tad disappointed by LGEN's increase, perhaps they are holding back money in reserve (perhaps visible by an increased dividend cover?)

[daveh]

The present share price is around that of Jan 1995 and the 2018 dividend payout is less than that of 10 years ago.

This hold forever philosophy has some questions to answer!

Well I've held since the formation of the company - I bought initially in the demutualisation of Norwich Union and topped up in 2007, 2010 and 2011 and reinvested divis in the holding bought at demutualisation. I've just looked at the IRR and it works out at ~4.5% pa for capital and 7% total return (slightly complicated by the dividend reinvestment being included in the capital appreciation if I remove the shares bought by dividend reinvestment the capital return drops to 3.2%, but that will still be an over estimate as the shares bought by dividend reinvestment were also accruing dividends). Still a total return of ~7% pa is not too bad, I've got shares that have performed a lot worse.

[Arborbridge]

The present share price is around that of Jan 1995 and the 2018 dividend payout is less than that of 10 years ago.

This hold forever philosophy has some questions to answer!

Good point, which is why I labelled it as one of my naughty children.

However, making the opposite case, I would say that I have had a "moderately acceptable" income stream since 2007 in exchange for not giving all my capital away. There is no total loss here, such there would be with an annuity: the cunning plan has worked, but not as well as it might have done

Aviva has been on the lower end of the good scale, in my view - he said, damning with faint praise. Whether to invest more money given that assessment is contentious point.

Arb.

[thebarns]

I hold the ordinary shares as well as preference shares in Aviva and General Accident (owned by Aviva).

Anyone know why the preference shares have tanked ?

And aaaargh as well !

[psychodom]

In the results it alludes to Aviva using capital this year to either pay off debt, or possibly cancel the preference shares, that's probably why they've fallen.

-Dom

[thebarns]

Just found it in amongst the reams of guff in their reports.

Says they can and are going to redeem preference shares at par, subject to balancing interests of ordinary and preferred shareholders !

Exactly what interests of preferred shareholders are being balanced by stating that they will redeem at par and consequently the preference share price has immediately tanked ?

Oh well, it will be of benefit to the ordinary shareholders, looks like they are stuffing preference shareholders as management look after themselves as usual.

[daveh]

In the results it alludes to Aviva using capital this year to either pay off debt, or possibly cancel the preference shares, that's probably why they've fallen.

-Dom

I found this:

Our priorities for deployment remain unchanged. Our objective is to use surplus cash to deliver sustainable benefits to our shareholders. For 2018, we have outlined our intent to repay approximately £900 million of expensive hybrid debt, saving more than £60 million in annual pre-tax interest expense. We have allocated approximately £600 million for bolt-on M&A, which includes the €130 million already committed to the Friends First acquisition in Ireland. And we have indicated that in excess of £500 million will be used for capital returns, which may include liability management, share buy-back or special dividends.

and this which suggests they have the ability to redeem the preference shares at par.

In 2018, we have signalled our intention to reduce hybrid debt by £900 million. We are targeting more than £500 million in additional capital returns, incorporating liability management and returns to shareholders. In this regard, we have the ability to cancel preference shares at par value7 through a reduction of capital, subject to shareholder vote and court approval. The preference shares carry high coupons that are not tax-deductible and they will not count as regulatory capital from 2026. As we evaluate the alternatives, one of the things we are considering is how to balance the interests of ordinary and preferred shareholders. We have committed €130 million to acquire Friends First in Ireland and have further appetite for bolt-on acquisitions in our major markets. Any unused M&A budget will be diverted to further reduce debt balances or fund additional returns.
7 Par value includes accrued interest, arrears and in the case of the General Accident plc preference shares, issue premium.

So that accounts for the big drop in preference share price

[idpickering]

Further to this announcement they put this out today;

Dividend Declaration

2017 FINAL DIVIDEND ON AVIVA PLC ORDINARY SHARES AND DIVIDEND ON 83/4% CUMULATIVE IRREDEEMABLE PREFERENCE SHARES

· On 7 March 2018, the Directors agreed a recommendation to shareholders of a final dividend of 19.0 pence per share on Aviva ordinary shares. Subject to shareholder approval at the 2018 Annual General Meeting, the final dividend for the year ending 31 December 2017 will be paid on 17 May 2018 to shareholders on the Register of Members at the close of business on the record date of 6 April 2018. Holders of Aviva American Depository Receipts (ADRs) will be paid the dividend approximately four business days after the payment to ordinary shareholders.

Full item here; https://www.investegate.co.uk/aviva-plc ... 00011068H/

[Gengulphus]

The present share price is around that of Jan 1995 and the 2018 dividend payout is less than that of 10 years ago.

But more than that of either 8 or 12 years ago... Basically, comparison with 10 years ago is currently a particularly tough test for shares (and especially financial shares) because in early 2008 the "credit crunch" financial crisis and resulting recession were just around the corner, but hadn't yet actually struck to any significant extent. And over the next 1-2 years the results of such 10-year-record checks can be expected to improve markedly, whether the companies actually make progress, stand still or even go mildly backwards over those 1-2 years. It will take a company going seriously backwards now to make them even stay about the same, let alone get worse...

E.g. at present, Lloyds's and RBS's 10-year records appear (and are!) appalling. In a year's time, even they are only likely to appear pretty mediocre...

This hold forever philosophy has some questions to answer!

I'd say that isn't specific enough - it's the buy-all-at-once-and-hold-forever philosophy that has questions to answer arising from 10-year comparisons, since they basically assume a holding bought all at once 10 years ago. And a couple of the questions it has to answer are "how do you pick the time to buy?" and "how big are the risks of choosing the wrong time to buy?"

With a 15-year Aviva price chart showing a price high of about 850p in early 2007 and a price low of around 160p in early 2009 (*), it's pretty clear that the risks are high - you would get over 5 times as many shares if you bought at the latter price rather than the former, and that would mean over 5 times as much income from every dividend payment ever since. For a full HYP, it wouldn't be that big, since the highs and lows of different shares don't match up anything like perfectly with each other. But they do match up quite a lot, and judging by index charts for the major indices, I'd still expect there to be something like a 2x improvement in income between the worst and best times to have bought all at once. That's quite a lot of retirement income to have at stake on a single date selection... In short, buying all at once is definitely a substantial gamble! (A gamble which may well be justified, as its statistically-expected outcome is generally to be better than delaying some of the purchasing will be. But only at the expense of the actual outcome being highly variable, so it depends on how highly the investor rates a more certain outcome. E.g. does one prefer to go for income of a random amount in the range £5k-£10k or of a random amount in the range £6k-£7k? If one needs £6k to eat, stay warm, etc, one will probably prefer the certainty of the latter; if it merely determines how good one's holidays can be, one might well prefer the better statistically-expected income from the former.)

The buy-spread-out-over-time-and-hold-forever philosophy is another matter. It's how I suspect most HYPers buy their HYPs, and basically it produces a blend of buy-all-at-once-and-hold-forever results. E.g. my own HYP's holding of Aviva has purchases in 2003, 2004, 2005, 2006, 2007, 2011, 2016 and 2017. A look at the share price chart says that the 2003, 2011 and 2016 ones are in profit, the 2004 and 2017 ones near break-even, and the 2005, 2006 and (especially) 2007 ones are making a loss. Overall, the holding is near break-even on capital value - and by the way, that's not a euphemism for "somewhat below break-even", but means that the question of whether it is above or below break-even is too close to call, given share price fluctuations, the fact that it is held in multiple accounts and the fact that my records are not ideally set up to answer that sort of question. On dividend income, it has of course been varying with the dividend cuts and rises, but it's basically pretty flat on the total of the income contributions I expected from the various purchases.

So certainly not a good record for a HYP share, and I have certainly done quite a lot better with other HYP shares - but equally, I have done a lot worse with yet others! And as far as the future is concerned, while there are quite a few HYP shares I would definitely prefer to Aviva on their historical records and future prospects, I've generally got as much of them as I want. So tinkering Aviva out would really be a question of swapping the minor devil I know for another such or for something I don't know that could be better - or could be a major devil.

In short (and switching metaphors), Aviva in my HYP is definitely worthy of a "Needs to try harder" report - but not of expulsion!

(*) As a caveat about that, I didn't create the chart I used myself, I haven't checked whether it does adjustments for corporate actions like rights issues correctly, and I haven't attempted to read off the prices all that accurately. I.e. this is get-a-rough-idea stuff, not necessarily anything more precise than that.

Gengulphus

[tjh290633]

The buy-spread-out-over-time-and-hold-forever philosophy is another matter. It's how I suspect most HYPers buy their HYPs, and basically it produces a blend of buy-all-at-once-and-hold-forever results. E.g. my own HYP's holding of Aviva has purchases in 2003, 2004, 2005, 2006, 2007, 2011, 2016 and 2017. A look at the share price chart says that the 2003, 2011 and 2016 ones are in profit, the 2004 and 2017 ones near break-even, and the 2005, 2006 and (especially) 2007 ones are making a loss. Overall, the holding is near break-even on capital value - and by the way, that's not a euphemism for "somewhat below break-even", but means that the question of whether it is above or below break-even is too close to call, given share price fluctuations, the fact that it is held in multiple accounts and the fact that my records are not ideally set up to answer that sort of question. On dividend income, it has of course been varying with the dividend cuts and rises, but it's basically pretty flat on the total of the income contributions I expected from the various purchases.

I was a bit late to Aviva, having noted PYAD's "bet the farm" punt on them in his value portfolio. I first bought in October and November 2010 at 398p and 370p. the initial yield being 6.5%, when they had fallen further.

I topped up in February and November 2016 at 443p and 461p respectively.

The dividend cut from 26p to 19p in 2012 led to a further cut to 15p in 2013, then a bounce back to 18.1p in 2014. Now we have got to 27.4p, with a yield of 5.4%. My average cost is 416p and my IRR is 9%. My average share IRR is 11.6%, so it is a little under par. The holding period is now 7.4 years, compared with an average of 13.3 years for the current holdings.

So, a bit curate's egg but not something to be disparaged.

TJH

[pendas]

I first purchased in 1997 when Norwich Union demutualised. The offer price was £3.50.

In 2000 there was a merger with CGU to form CGNU. There was a 48 CGNU for 100 NU share swap making an adjusted price of around £7.30

I've subsequently bought into Aviva as it became known in 2007,2010 and 2016 producing an average cost now of £5.67.

Dividends have only been recorded since May 2006 unfortunately, so the total annualised return of 1.6% shown in my MS Money program understates the reality.

If I calculate from 2006 when dividends were first recorded, the annualised return is 2.57%.

So perhaps another question to raise after looking at tjh's previous post. Is the time to buy always now?

[Gengulphus]

So perhaps another question to raise after looking at tjh's previous post. Is the time to buy always now?

Depends on exactly what question you ask.

If you have a particular share in mind and ask the question specifically about that share, no, the time to buy it is not always now. For example, I reasonably often ask myself the question "Is now the time to buy Diageo?", "Is now the time to buy Reckitt Benckiser?" or "Is now the time to buy Unilever?", often having been prompted into asking it by a discussion on these boards (or TMF's boards before they were closed). My answer is frequently "No" - in fact, it's been "No" for the first two every time I've actually asked them, so they're not in my HYP.

On the other hand, if you've got cash to invest and ask yourself "Is now the time for a HYP purchase?", then at least as far as I'm concerned, the answer is generally "Yes" (there are a few exceptions, which I'll get on to). That doesn't mean that it will always turn out to have been the time with the benefit of hindsight, just that based on what you know at the time, it's a better bet that the answer is "Yes" than that it is "No". E.g. at present, there's certainly the possibility that the recent market correction will turn into a full-blown bear market, in which case you would definitely do better to hold off on HYP purchases. But there's equally certainly the possibility that it will be recovered from, in which case you would definitely do better not to hold off on them... Overall, due to the general tendency for shares to be better investments than cash, the latter will be a better bet than the former.

Having got the answer "Yes", you then go on to ask yourself "Which is the best share for this HYP purchase?". And if you like, having got an answer, then ask yourself "Is now the time for a HYP purchase of the share I've selected?". But that's more a sanity check than anything else: if you get the answer "No", it quite likely indicates something previously missed that means it's not in fact the best share. And even when that isn't the case, leaving the best share as a likely candidate for the next purchase and moving on to look at the second-best share is a very reasonable way of dealing with the situation.

So what are the exceptions that I mention above? The main ones I can think of are:

* If you think you've got the talent and/or skill to be able to make better-than-random bets on short-term market movements and are confident enough about that to be willing to bet on it and take the risk that you're wrong. My only real advice about that is that if you're right about having that talent/skill, HYP probably isn't the strategy for you, and to take care not to be too badly burned if it turns out that you're wrong...

* If the bet outlined above that you're making by investing now is too big for comfort, both as a percentage of the existing value of your HYP and as a percentage of the total you intend to invest in it in the future. In that case, you might (or might not) very reasonably reckon that the answer should be "Only with some of the available cash; the rest should await developments". For example, if at present you're near retirement and have a large lump sum to invest, e.g. because you're using the proceeds of selling other investments to start up the HYP or very substantially grow it (e.g. double it), or because you've received a big inheritance that does the same, then the differences between the various outcomes of making and not making the bet might be more than you can comfortably contemplate, and you could be happier e.g. investing half now and half in a year's time. In particular, seeing a substantial portion of the lump sum disappear if a full-blown bear market does materialise is a pretty unpleasant prospect, and seeing half that amount disappear with the consolation of being able to then use the other half of the lump sum to buy at especially low prices, while probably still unpleasant, is considerably less so. It does involve a statistical expectation of missing out on a year's worth of the difference between cash and share returns on half the lump sum, which is a fairly hefty price to pay for that less-unpleasant possible outcome, but you might consider it a price worth paying...

* Probably a pretty unusual exception, but it could be that the usefulness to you of the possible outcomes of holding off from buying is much higher that those of going ahead and buying. For example, suppose a once-in-a-lifetime opportunity is coming up in a year's time that you would really like to take up, but can only do so if you're in a position to retire early by then, and you've got a largish lump sum to invest. It could be that investing it now offers no realistic chance of being in that position, while holding off on investing it does offer some realistic chance, specifically if a full-blown bear market does materialise and drive share prices down across the board, making it possible to use the lump sum to buy HYP shares at as especially high yield. It will only be a fairly small chance, but if you value the opportunity highly enough, you might reckon that some chance to take it is better than none, even at the price of missing out on a year's worth of the difference between cash and share returns on the full lump sum.

All of those exceptions depend on particular personal circumstances and/or preferences, and only the first is going to apply to routine top-ups of the HYP with a few months' worth of regular savings and/or dividends that one is reinvesting.

Gengulphus

[tjh290633]

So perhaps another question to raise after looking at tjh's previous post. Is the time to buy always now?

My view is that, if you have the money available and a share that you want to buy for the first time, or to top up, and it meets the qualifications, then waiting for a better opportunity is usually a fruitless occupation.

The emphasis has to be on "meets the qualifications". In the post above, Gengulphus raises the question of the time being ripe for the purchase of shares like Unilever, Diageo or Reckitt-Benckiser. There are times when Carpe diem applies. RB. has had a torrid time of late, yet still only yields about 2.8%, not enough to whet the HYPer's appetite, so this is not one of them. However, were the market to have a sudden catastrophic down-turn, 40% perhaps, then the yield might rise to the region of 5% and the temptation might be too much to resist.

In the present context, Aviva is yielding over 5% and if one wishes to top up their holding, certainly the time is now. My criteria for topping up are well known. Originally I would just top up the lowest value share regardless, but time has moved on. The other possibility was topping up the highest yielding share, again, not always the best option. Combining the measures of portfolio weight and yield allows me to make a judgement, not infallible, but one made from available information.

TJH