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Aug 12, 2021

Aviva to return £4 bn to shareholders amid buyback and dividend boom

Proposed payout falls short of demands by activist investor

Aviva, the UK-based insurance group, has said it will return £4 bn ($5.5 bn) to shareholders amid a boom in buybacks and dividend payments. 

The payout will include a £750 mn buyback program starting immediately, says the group in its interim results, which were released this morning. 

The FTSE 100 insurer also reported a 17 percent increase in operating profit and the sale of eight businesses, part of a strategy to refocus on core markets in the UK, Ireland and Canada.

‘We have made good progress on all fronts in the 12 months since we launched our strategy,’ says Amanda Blanc, group CEO of Aviva, in a statement. ‘We are delivering on our commitment to make a substantial capital return to our shareholders.’

The capital redistribution is less than the £5 bn called for by Cevian Capital, the activist investor which revealed in June it had built a 5 percent stake in the company. Cevian has also demanded cost cuts of £500 mn.

Companies have significantly boosted dividends and buyback programs in recent months amid an improving economic picture, looser regulatory constraints and strong financial results. 

Last year, regulators around the world put pressure on financial firms to halt buybacks and dividend payments due to the severity of the Covid-19 pandemic, but those restrictions have gradually eased. 

In July, the Bank of England lifted restrictions on payouts by banks given their resilience to economic shocks. ‘Extraordinary guardrails on shareholder distributions are no longer necessary,’ it wrote in its financial stability report. 

In the same month, the European Central Bank said it would drop its recommendation that financial firms exercise ‘extreme prudence’ with shareholder payouts, although it asked lenders to remain cautious. 

Since these announcements, companies such as the UK’s Barclays and Netherland’s ING have announced they will boost capital returns to shareholders. 

In the US, the Federal Reserve has slowly removed limits on shareholder payments by banks over the last several months. In June, it announced 23 banks had passed stress tests and all temporary restrictions on them would expire at the end of the month.

Outside of the financial sector, many companies have committed to significant buyback and dividend hikes given their high cash levels and impressive results in the first half of 2020. In light of this activity, JPMorgan estimates trailing 12-month buyback announcements in the US market could hit $1 tn for the first time.