LONDON -- The shares of Aviva (AV 0.55%) (AVVIY 0.74%) dived 53 pence, or 15%, to 307 pence during early London trade this morning after the general insurer cut its final dividend by 44%.

A 9 pence per share final payout was declared for 2012, down from 16 pence per share for 2011.

The full-year dividend came in at 19 pence per share, some 7 pence per share, or 27%, below that declared for the year before.

John McFarlane, Aviva's chairman, admitted:

While central liquidity balances are likely to improve with the settlement with Bankia and the completion of the sale of the US business, group resources nevertheless contain insufficient provision for unknown risks, our desire to pay down internal and external debt, and to maintain prudent capital and liquidity levels.

In the circumstances therefore, we have taken the difficult decision to reduce the dividend to a level that can be cash covered in 2014 and to enhance the availability of resources for important long-term structural requirements.

Mark Wilson, Aviva's chief executive, claimed:

The rebasing of the dividend and the elimination of the dilutive scrip is about giving certainty to shareholders, reducing debt, and putting Aviva in a sound position for the future. This is the right course of action.

Looking ahead, Mr Wilson anticipated the 2013 interim dividend would be "rebased" by the same proportion as the 2012 final dividend, suggesting the next payout will be cut from 10 pence to 5.625 pence per share.

Such a reduction signals Aviva shareholders are now in line to collect a payout of 14.625 pence per share during the next twelve months, which implies the shares currently offer a 4.8% income.

Aviva's dividend decision accompanied annual results that showed underlying operating profits falling 5% to 1.8 billion pounds and a 3.1 billion-pound total loss after tax following a 3.3 billion-pound disposal and write-off.

The firm's dividend development also comes two weeks after fellow insurer RSA Insurance chopped its final dividend by 33%.

Of course, whether today's dividend cut, the early share-price reaction, that 4.8% potential yield -- and the wider prospects for future payouts in the unpredictable insurance sector -- all combine to make Aviva a buy or a sell remains your decision.

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