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Will investors be enticed by AMP’s 5.7% dividend yield?

Monday’s pre-open profit downgrade has certainly shaken investor confidence in AMP (ASX: AMP). The stock began the week trading 10% below its previous close and as of this morning the share price is still in the doldrums, down 13% at $4.39 from the pre-downgrade price of $5.

Assuming the company can maintain its current dividend at 26 cents per share (some corners of the market are speculating the board might be forced to reduce it) then the stock is currently trading on a dividend yield at 5.9%, which is no doubt looking pretty attractive to some investors.

The major cause of the downgrade related to AMP’s income protection and wealth insurance products, given that the other major domestic insurers Suncorp (ASX: SUN) and Insurance Australia Group (ASX: IAG) don’t have significant exposure in this space, investor enthusiasm for these stocks haven’t been noticeably affected.

Foolish takeaway

When a short-term blip, as opposed to a long-term problem affects the share price of a quality company, it can be a great buying opportunity for savvy investors.

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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