We have thousands of investors around the world. These investors own either Aegon shares or bonds. The capital they provide enables us to operate our business. Our goal is to ensure they have a consistent and attractive return on their investment.
- Shareholders receive returns through dividends. These are paid twice a year: an interim dividend payable after half-year results, and a final dividend, paid after the company's AGM. Shareholders can opt for payment either in cash or shares. In 2017, our dividend payments to Aegon shareholders totaled just under €440 million.
- Unlike shareholders, bondholders receive their returns through regular interest payments or coupons. Last year, Aegon paid €282 million in coupons to its bondholders. These coupons are determined at the moment the bond is issued and continue to be paid through to the bond's maturity.
Our dividend was up 4% to €0.26 per share in 2016
Our market capitalization was €10.6 billion at the end of 2016
Our target capital return to shareholders
Payment of dividends to shareholders depends, ultimately, on the company's capital position and cash flow. Over the next few years, we're expecting our business to generate more capital. Part will be used to meet the operating expenses of our holding company. We'll also re-invest in our businesses and, as we've seen, for the period 2016-2018, we expect to pay back €2.1 billion to our shareholders through dividends and the share buy-back we carried out two years ago1. It's important that, as a listed company, we offer shareholders regular, stable dividend payments. Since 2012, we have increased dividends every year consistently by either one or two cents a share – equivalent to a 29% increase over five years.
Share price performance
Shareholders may also derive value from the performance of Aegon shares. Our stock price is determined, in part, by our financial performance. That said, the value of our shares is also strongly influenced by other factors, including economic conditions, which may push financial markets either up or down. Last year, Aegon's share price rose just under 2%. That was behind the insurance sector as a whole (by comparison, the Eurostoxx 600 index of leading insurance stocks was up 6.3%). In 2017, total shareholder return for Aegon (which takes into account dividends paid as well as share price performance) came to 7%.
Over the past several years, we've steadily increased dividends to our shareholders. We use cash from our business to fund our holding company expenses, execute on our strategy and pay dividends. Our final dividend for 2017 is subject to approval by Aegon's annual General Meeting of Shareholders, to be held in May 2018.
Communications with investors
We keep financial markets as fully informed as possible of our strategy and performance. We have a dedicated Investor Relations team. Every year, Aegon's senior management meet with hundreds of investors and financial analysts in the US, Europe and Asia. We also hold regular conferences and roadshows to explain the benefits of investing in Aegon. In 2017, we organized meetings with some 900 different investors and analysts. In addition, shareholders meet at least once a year at the company's AGM in The Hague. We also communicate on our financial performance. From 2018, we'll be releasing results every six months, instead of quarterly, to encourage investors to take a longer-term view of the company.
Our financial performance and targets
We had a strong financial performance last year. This was due mainly to earnings growth from our main businesses as a result of very favorable financial markets, reductions in expenses and better claims experience in the US. Our businesses in the Americas, Europe and Asia all reported increases in underlying earnings before tax. Net income rose significantly – in part thanks to a one-off gain from the recent cut in US corporate tax rates. Gross deposits were up substantially in 2017 (+44%) – a reflection of the expansion in our UK platform activities and continued growth in our asset management business, though there were net outflows in the US as a result of some contracts being discontinued following our 2015 acquisition of Mercer's retirement plan business. Our businesses are also generating more capital. By the end of 2017, we had excess cash in our holding company of €1.4 billion; this gives us flexibility when it comes to dividends, share buy-backs, new acquisitions or debt repayments.
1. Share buy-backs increase returns for shareholders in two ways: first, by reducing the number of outstanding shares, they effectively increase earnings per share, which results in a higher market value for the remaining shares; second, share buy-backs reduce equity and therefore increase the company's return on equity (assuming returns remain the same). Our share buy-back was completed in May 2016.