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Life assurer Aviva's generous dividend policy was back in the spotlight today after one of its fiercest rivals, Legal & General, decided to cut its payout to shareholders in order to conserve £120 million of cash.
Shares in Aviva were among the biggest blue-chip casualties, tumbling 33¼p or almost 13% to 233¾p after going ex-dividend.The firm decided earlier this month to press ahead with payouts to shareholders despite cries from the City that it could ill-afford them. The shares slumped to a record low of 163p but later rallied.
Legal & General has seen its share price double during the past couple of weeks after they hit a record low of 23p on 9 March in the wake of the results from Aviva. Today they fell 2.9p to 39.9p, having briefly touched 36.1p, after L&G reported a loss of £1 billion and a halving of the final dividend.
Keefe, Bruyette & Woods says the reduced dividend at L&G and the absence of a rights issue could be viewed as positive. But Cazenove says the cut is unwelcome and may affect management credibility.
Shares generally were left nursing modest falls, with much of Monday's exuberance that greeted the US Treasury's proposed $1 trillion rescue of the banks just a distant memory. The plea by Bank of England Governor Mervyn King for the Government not to pump any more money into the economy has also taken the edge off things. The FTSE 100 index fell 21.59 to 3889.87.
Wall Street followed the lead of the futures market with prices marked higher this afternoon after a bigger-than-expected rise of 3.4% in durable goods orders last month. The Dow was up 71.76 points at 7731.73.
There was little appetite in London for the latest gilts auction — £1.75 billion of Treasury 4.9% 2049. The issue by the Debt Management Office attracted bids worth just £1.67 billion, or covered just 0.93 times, while the tail — the difference between the yields of the highest and lowest accepted bids — of 12.8 basis points was the longest on record. It was the first gilt auction failure for 14 years.
Dealers complained the issue was just not attractive enough, given the turbulent economic outlook. Longer-dated gilts elsewhere in the market suffered falls of more than £1.
Goldman Sachs has raised plumbing equipment supplier Wolseley from sell to buy after the group's £341 million placing, rights issue and share consolidation and its exit from loss-making US division Stock.
These moves make the group “attractively valued” and the broker has raised its target on a cum-rights basis from 160p to 300p, rising to an ex-rights and consolidated target of 1212p.
Oil explorer Tullow retreated 8p to 814½p despite news of another big find in Ghana and one of the City's big-hitters raising its rating on the shares to a buy. Tullow says it has struck it rich at its Tweneboa-1 well off Ghana, with the oil said to be of good quality. Citigroup has responded by raising Tullow, up 4p at 826½p, from hold to buy because it is now positive about the group's financing and unique exploration portfolio. It has jacked up its target from 765p to 1000p but keeps rival Dana Petroleum, up 32p at 1152p, as its top pick in the sector. It has raised Dana's target from 1100p to 1400p.
Property developer Hammerson dipped 11p to 265½p after the successful take-up of its rights issue. The rump of 5.8 million shares was placed with various institutions at 267.89p.
Rio Tinto fell 44p to 2197p despite state-owned Aluminium Corporation of China (Chinalco) getting the green light from Australia's competition regulator to proceed with its proposed $19.5 billion (£13.4 billion) cash injection into the mining giant.
Chinalco has agreed to buy $7.2 billion of Rio Tinto convertible bonds and spend $12.3 billion on stakes in Rio Tinto mines. Chinalco will lift its stake in Rio to 19%. But, as the stockbroking arm of Royal Bank of Scotland was quick to point out, the Rio share price has risen 42% in just three weeks.
