Standard Life's 1.5 million shareholders get a 5% dividend hike as profits rise 10%.
For the first 182 years of its life, Standard Life (LSE: SL) was a mutual life assurer -- owned by, and run for the benefit of, its members.
Floating high
Then, in July 2006, Standard Life demutualised, becoming a PLC by floating on the London Stock Exchange. It issued shares at 230p, raising around £1.1 billion and valuing the firm at nearly £5 billion.
In total, around 2.4 million individual members became entitled to free shares, with the average windfall worth £1,475. Qualifying members buying more shares were given a 5% discount off the flotation price. In addition, 1.7 million shareholders who held onto their shares for a year (until July 2007) received one bonus share for every 20 held, increasing their holding by 5%.
Along came the credit crunch
Today, Standard Life still has around 1.5 million private shareholders, making it one of the most widely held shares in the UK.
In its first year as a public company, Standard Life did its shareholders proud, producing total returns of around 50%. Indeed, at their peak, Standard Life shares traded as high as 357p on 5 June 2007.
However, along came the credit crunch and economic recession, sending the market sharply lower. Standard Life's share price crashed heavily during the downturn, hitting a low of 123.5p before bouncing back in the year-long rally that followed.
Four years on
Standard Life shares have had a strong run recently. However, this ascent ended on Wednesday, when the firm released its half-year results to 30 June.
These showed net inflows up 71% to £5.3 billion and assets under management increasing by 5% to £179 billion.
As a result, Standard Life's operating profit hit £182 million, up 10% on the first six months of 2009. This allowed the firm to boost its interim dividend to 4.35p, up 5% on last year. For a typical shareholder owning, say, 640 shares, this interim dividend is worth around £28.
Despite these solid results, the market was disappointed, causing the shares to close at 208.6p on Wednesday, down 3.6% on a generally poor day for shares.
What next?
Although Standard Life's shares fell on these results, they are well ahead of the 170p low they hit on 1 July.
Also, the life assurer's performance weakened in its two largest markets. In the UK, operating profit fell to £76 million, down 5%. In Canada, operating profit tumbled almost a sixth (16%) to £62 million.
However, these declines were more than offset by better results from the group's global investment management division, where profits rose by £22 million to £49 million. However, given nervous world markets of late, this sparkling performance is unlikely to be repeated in the year ahead.
Although demographic trends support future growth in Standard Life's key annuity business, life assurers face regulatory challenges in the form of the Solvency II proposals. If implemented, these EU rules would force insurers to hold more capital and take fewer risks, reducing their future profitability.
Valuation
With a yield approaching 5.7%, Standard Life pays a chunky dividend, making it attractive to income investors. However, the firm's P/E ratio isn't bargain basement territory -- at around 13 for the 2010 calendar year.
Personally, I prefer Aviva (LSE: AV) for its higher yield (almost 7%) and lower P/E (under seven).
More from Cliff D'Arcy:
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