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One of the interesting things about the stock market is its inherent unpredictability. A single stock or the entire index can be up one day and down the next and rarely does anyone ever know why, although individual speculation abounds. Speculation is often closer to reality at this time of year as so many companies are reporting year end results.
Then there are the days where two realities are juxtaposed and one might begin to sense that they are losing touch with reality. Like today, for instance. Insurers Aviva (LSE:AV.) and Standard Life (LSE:SL.) announced final dividends. Though the announcements on the subject could not be more diametrically opposed, the results, in terms of share price, were pretty much the same.
Aviva
Aviva announced an operating profit of £2.13 billion. Although pretty much in line with forecast, it is a 15% decline from 2011. Piggybacking on that was the absolutely delightful news that the company will payout a 19 pence dividend, knocking the wind of shareholders’ sails who were blissfully hoping for something in the neighborhood of the 26 pence per share that they received last year. In this case it does not take much speculation to figure out why Aviva’s share price plummeted nearly 41 pence (11.3%) to 319.27 by mid-afternoon.
Aviva directors elected to cut the dividend – and all executive bonuses and raises – in order to attack the company’s debt. Why haven’t the banks thought about that? The answer may be in what happened to Aviva’s value as a result of the chain reaction. The plunge in share price sliced Aviva’s market cap by £1.3 billion, dropping it from the second-ranked insurer on the FTSE to fourth. That’s just a wee bit embarrassing.
Investec noted that “Aviva has the worst dividend paying record of all the major UK life companies, and it will clearly take some considerable time to persuade investors that the latest management team have got it right.” Aviva CEO Mark Wilson, however, has a plan. “We need to be simple, we need to be understandable, we need to be as dependable as a Swiss clock, and that is my promise.” Whether or not investors believe him, and whether or not he can deliver is a story for the speculators.
Standard Life
Standard Life, on the other hand, watched its share price drop, albeit not nearly by the same proportion, after announcing “substantial growth in profits and increasing dividends.” Its share price rolled back by 0.11% to 373.8 during the same time frame.
Not only did operating profit skyrocket by 65% to £900 million, Standard report a growth of £20 billion in its management portfolio, now totaling £218 billion. The icing on the cake for investors, though, was double thick as Standard announced a final dividend of 9.8 pence, a 6.5% increase. That makes the total annual dividend of 14.7 pence. But wait, there’s more! The shareholders will also receive a windfall special dividend of £302 million. That divides out to an additional 12.8 pence per share! And that’s a pretty good pay day.
CEO David Nish had little to say, but promised “significant opportunities for further strong and sustainable growth.”
Two major players – same sector – same day – wildly different results – both shares prices drop. Go figure. You can speculate as to how that happens. But you will never know for sure.
Interesting story though.
