RSA Insurance Group (LON:RSA), one of the big dividend payers among FTSE 100 companies, has slashed its dividend by about a third.
The company has announced a final dividend of 3.9p in respect of 2012, compared to a final divi of 5.82p the year before.
The final dividend payment for the year makes the full year divi 7.31p, down from 9.16p the year before.
The board said it expects the interim dividend in the 2013 results will be cut by a similar percentage. The market consensus forecast for the 2013 dividend had been 9.55p prior to today’s shock announcement.
The announcement came as the company boasted of a solid performance in 2012, with a 5% growth in net written premiums to £8,353mln.
The continuing miserable return on bonds was cited as the reason for the dividend cut.
Profit before tax tumbled to £479mln from £613mln in 2012.
“Operating profits of £684m have been impacted by the Italian earthquakes, extreme wet weather in the UK in the first half of the year and falling bond yields,” said group chief executive Simon Lee.
“The board's decision to rebase the dividend is a prudent move that will enable us to invest in the opportunities we see for growth and is in the best interests of our shareholders,” claimed Lee.
Assuming that the interim dividend for 2013 is cut by a third to 2.28p, RSA shares still yield 5.24% on a rolling 12 months dividends basis (i.e. 2012’s final dividend plus 2013’s interim divi).
The non-life insurance sector as a whole yields 4.6% currently, not including today’s dividend cut by RSA.
Chopping the dividend is “absolutely the right thing to do for the business given the prospect of prolonged low bond yields,” Lee claimed.
“The new dividend is appropriate for the business today, sustainable into the future and will allow a progressive dividend policy going forward,” he added.
The shares tumbled 13% to 118.77p on the news.