2 reasons to sell and 5 reasons to buy AMP Limited

Beleaguered wealth management provider and insurer AMP Limited (ASX: AMP) has reported an underlying profit of $849 million for the full-year ending 31 December 2013. This result represents a decrease of 11% on the underlying 2012 result of $950 million. While the decline in profits is of course unwelcome there would appear to be more pros than cons in favour of AMP.

2 reasons to sell

AMP’s shares have been sold down over the past year with the price falling 17%, compared to a gain in the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) of 7.4%. The primary cause of this sell-off has been investor concern surrounding the wealth protection business which has endured ‘experience losses’.

Secondly, AMP like many other insurers including QBE Insurance Group Ltd (ASX: QBE), has suffered from lower investment income due to lower short-term interest rates.

If you are firmly in the camp that AMP’s troubled wealth protection business will continue to struggle and that low interest rates will be an insurmountable drag on performance for an extended period then you may have cause to be in the ‘sell’ camp.

However, there are (at least) 5 reasons to buy

Firstly, with the exception of the Life Insurance division most other areas of AMP performed well in 2013. Operating earnings at AMP Bank were at record levels after growth of 34%, the New Zealand division was up 33%, Wealth Management increased 16% and the Mature division was up 7%.

Secondly, a final dividend of 11.5 cents was declared bringing total dividends for 2013 to 23 cents per share. Based on a share price of $4.50 this equates to a dividend yield of 5.1%.

Thirdly, AMP is a market leader with scale and capacity advantages.

Fourthly, AMP is investing in selective growth opportunities in Asia such as the successful $2.2 billion mutual fund with joint venture partner China Life.

Fifthly, AMP’s business efficiency program is expected to deliver $138 million in cost benefits by 2016.

Foolish takeaway

Excluding the weak performance of the wealth protection business, AMP achieved a 15% growth in earnings compared to FY 2012. AMP would appear to be sitting in the ‘out-of-favour’ blue-chip stock category at present, making it potentially a great opportunity for long-term investors to snap-up a quality company at a reasonable price.

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Motley Fool contributor Tim McArthur owns shares in QBE Insurance Ltd.

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