Don't let it get away!
Help yourself with the Fool's FREE and easy new watchlist service today.
The insurer is currently undergoing severe restructuring work to transform its complex, multi-layered structure into a sole operating company with associated subsidiaries, in an effort to stymie recent heavy losses. But I believe Aviva's metamorphosis still has a long way to go, which could result in further earnings pressure and, thus, pressure shareholder payouts again.
But bear with me, as I believe that there are other fantastic opportunities with which to significantly bolster your investment income, which I'll mention in a minute.
Dividends could yet take another bashing
Aviva has traditionally been a popular pick with investors seeking to enhance their income, with shareholder payouts well ahead of those offered by the rest of the U.K. blue-chip stable. Indeed, expected dividend yields of 6.6% and 6.8% for 2013 and 2014 respectively compare favorably with the current 3.5% FTSE 100 average.
Despite this, Aviva has, in recent times, taken the scythe to dividends, as earnings have come under pressure -- indeed, annual dividends have been slashed three times since the turn of the Millennium. And last year's full-year payout of 19 pence represented a gargantuan 27% drop from the 2011 equivalent.
City brokers expect the dividend to pick up this year and next, to 21.6 pence and 22.1 pence, correspondingly, although better income growth prospects can probably be sought elsewhere. And even though dividend coverage of 2.1 times and 2.2 times for these years is above the generally regarded safety mark of 2, renewed earnings pressure could put these modest projected payout increases in jeopardy.
Heavy 2012 losses could spill over into coming years
The insurer announced earlier this month that IFRS operating profit before tax slumped 15% last year, to £2.1 billion, with life insurance and general insurance slumping 5% and 4%, respectively, to £1.8 billion and £893 million.
Transformation work should push basic earnings per share marginally higher in 2013 and 2014, according to broker forecasts, to 45.7 pence and 49.5 pence, from 44.7 pence last year. Last year's reading was down from 53.8 pence in 2011.
These earnings predictions leave the firm currently trading on a P/E ratio of 6.8 and 6.3 for this year and next, well below the life insurance sector average of 12.7.
However, Aviva's recent dividend record leaves a lot to be desired compared with its peers, making the current rating fully justified in my opinion. Do not be surprised to see dividend forecast cuts in the near future should the firm's already lowly earnings growth projections fail to materialise.
Bolster your investment income with the Fool
Although Aviva is a risky pick for income investors at present, there are plenty of other FTSE 100 winners available to really jump start your investment income. So, check out this brand new and exclusive report covering a multitude of other premium payers right now.
Our "5 Dividend Winners To Retire On" wealth report highlights a selection of tasty stocks with an excellent record of providing juicy shareholder returns. Among our picks are top retail, pharmaceutical, and utilities plays, which we are convinced should continue to provide red-hot dividends. Click here to download the report -- it's 100% free and comes with no obligation.