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Why Aviva plc Has Gained 20% Since This Time Last Year

Aviva (LSE: AV) (NYSE: AV.US) has advanced 20% to 394p during the last 12 months, comfortably outperforming the FTSE 100 index which has managed a respectable 12% gain over the same period.

The insurer, which serves 34 million customers across the UK, Europe, Canada and Asia seems to have impressed investors as it has continued to reshape its business.

A gap at the top

Aviva’s 20% gain over the last year is perhaps even more impressive considering it spent several months in 2012 without a CEO. Andrew Moss stepped down as Aviva’s CEO in May 2012 and his replacement, Mark Wilson, only joined the company in December 2012.

That said, Aviva certainly kept itself busy over this period, selling stakes in various operations in the Netherlands, Sri Lanka, the Czech Republic, Hungary and Romania. And a few days before Christmas 2012, it announced the largest disposal of all — the sale of its US business for £1.1bn.

The pace of disposals has slowed a little in 2013, but Aviva has continued its strategy of slimming down with exits from Malaysia and Russia.

Dividend destruction

However, for most Aviva investors, the big news of the last 12 months was the dividend cut announced in March 2013. Aviva’s high-dividend payout had been under the microscope for some time. In the wake of the financial crisis, it was cut from 33p per share for 2008 to 24p for 2009, and then increased slightly for the following two years.

But Aviva’s management decided even this reduced level of payout was no longer sustainable in the long run, given the cash flows generated by the business. The management team decided to “rebase” (i.e. cut) the full-year dividend from 26p per share for 2011 to 19p for 2012.

The reaction from Aviva’s shareholder base was initially very negative, with the shares sinking 12% on the day this news was released. However, they have slowly fought their way back since. At the time of writing they stand at 394p, which is 10% higher than the day before the dividend cut was revealed.

Early last month, Aviva released a promising set of interim results. These showed a profit of £0.8bn, a 30% jump in cash flow, and a 17% increase in the value of new business. The figures were accompanied by a 5.6p per share interim payout. For the whole of 2013, Aviva’s dividend is forecast to be around 15.5p per share, representing a yield of 4%.

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> Stuart does not own any share mentioned in this article.