March 9, 2011 / 12:18 AM / 7 years ago

Pru hikes dividend to dispel AIA fallout

<p>Raised lettering in the brickwork of the former Prudential Assurance building casts shadows in the City of London May 28, 2010. REUTERS/Luke MacGregor</p>

LONDON (Reuters) - Insurer Prudential said it would pay a much bigger dividend from forecast-beating 2010 profits, hoping to dispel lingering investor resentment over its costly failed bid for Asian rival AIA last year.

Shareholders will get a payout of 23.85 pence per share, surpassing the 21 pence expected by analysts, Britain’s No. 1 insurer said on Wednesday, adding that it aimed to keep dividends rising, helped by its fast-growing Asian operation.

“All signs are that the business has performed pretty well; it’s good for them to rebase the dividend,” said Paul Mumford of Cavendish Asset Management, a Prudential shareholder.

“Could they have done this if they had done the AIA deal? I‘m not sure, but I do think it is now a very well-rounded business.”

Prudential shares were up 4.7 percent at 747.5 pence by 1:40 p.m. MT, making the company the biggest riser in the FTSE 100 share index, which was 0.3 percent lower.

Prudential was forced to pull its $35.5 billion (21.9 billion pounds) bid for AIA in June last year after investors baulked at the price, leaving it to shoulder 377 million pounds in costs, and prompting calls for Chief Executive Tidjane Thiam and Chairman Harvey McGrath to quit.

CHARM OFFENSIVE

The insurer has since sworn off big acquisitions and set itself ambitious cash generation and profit targets in an effort to mend relations with its owners, bolstering its shares and reducing pressure for management change.

“We believe that the majority of the shareholders are focussed, rightly, on the performance of the company,” Thiam told reporters on a conference call.

Thiam declined to comment on whether shareholders still wanted him out, or on press reports that some investors had asked the company to limit performance-related bonuses that he would be entitled to for 2010.

Thiam’s pay package for 2010 will be made public when Prudential issues its annual report on April 13.

Prudential made a 2010 operating profit of 1.94 billion pounds, up 24 percent on the year, and ahead of the 1.73 billion pounds pencilled in by analysts, according to an average forecast calculated by the company.

“Every line, pretty much, is well north of where consensus was, so they’re doing all the right things,” said Berenberg Bank analyst Trevor Moss.

The improvement was driven by strong growth at Prudential’s flagship Asian division, which operates in the fast-expanding economies of Southeast Asia, and from its Jackson National Life unit in the United States.

Prudential said in December that it aimed to generate 3.8 billion pounds in cash in the four years to 2013, and analysts had expected the company to follow up with plans for returning some of it to shareholders.

“Prudential has delivered ahead of schedule on the cash flow story this morning,” analysts at JP Morgan wrote in a note.

“We think this is a clear signal of strength and a differentiator versus peers.”

Prudential shares fell steeply on news of the AIA deal in March last year, but had recovered by September, and have since risen a further 24 percent, outperforming a 15.5 percent increase in the Stoxx 600 European insurance share index.

Editing by Will Waterman

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