3 reasons to stick with your AMP Limited shares

The tide could be turning for the embattled insurer.

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With the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) poised to rebound today after yesterday's sharp 0.8% sell-off, the timing is good for the release of quarterly cashflow and assets under management figures from AMP Limited (ASX: AMP).

The insurer and financial services provider has had a cloud hanging over its head ever since announcing troubles in its Wealth Protection business. Despite these ongoing concerns, the share price has rallied strongly from its 52-week low of $4.11 – which it hit in February – with the stock now trading at a more reasonable $5.18.

While the share price gains are certainly pleasing for shareholders, the stock is still down 4% over 12-months, which equates to index underperformance of around 10%. There are a number of reasons to believe better times still lie ahead for the company.

Here are three reasons for shareholders to stick with AMP:

1)      Total assets under management (AUM) at the end of March were $101.1 billion reflecting growth of $600 million in AUM for the quarter. The stickiness of AUM and the recurring fees generated from AUM is a key factor in AMP's future ability to pay a steady, recurring dividend.

 

2)      Just as QBE Insurance Group Ltd (ASX: QBE) has had some recent troubles amongst certain divisions particularly in the USA, so too AMP has had issues with its Wealth Protection business. Pleasingly, management has reported that the business is performing broadly in line with their expectations, and that they expect the claims experience for FY 2014 to be roughly in line with FY 2013. This would appear to suggest that the worst is behind the division and management has successfully stabilised the business.

 

3)      The long-term growth outlook for AMP's financial advice and funds management divisions are particularly attractive, especially considering the expected rise in the compulsory superannuation contributions. As a leading provider with significant scale and superb distribution, AMP is well positioned to grow its earnings and its dividends.

 

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

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