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3 reasons to stick with your AMP Limited shares

2014 has been a stunning year for investors in AMP Limited (ASX: AMP), with shares in the financial services company easily outperforming the ASX. Indeed, AMP is up 32% since the turn of the year, while the ASX has made gains of just 5% over the same time period. Clearly, many investors may be thinking about taking a profit, but here are three reasons why it could be worth sticking with AMP for a good while longer.

  1. The recent interim update from AMP showed the company has increased its bottom line by 16% year-on-year, which is a hugely positive result for the company. However, there could be much more to come, with AMP set to deliver very strong growth numbers over the next couple of years. For instance, it is forecast to increase EPS from 22.5 cps in 2013 to 34.8 cps in 2014, which would be a gain of 55%. Furthermore, profit is set to rise further in 2015 – to 38.1 cps per share, which would represent a year-on-year increase of 9.5%. Clearly, AMP has top notch growth potential moving forward.
  2. As well as being a strong growth play, AMP also trades at a price level that represents good value for money. Certainly, after its price rise its P/E ratio now looks rather high. In fact it’s considerably higher than that of the ASX, which has a P/E ratio of 16.2 versus AMP’s 18.9. However, this doesn’t paint the full picture, since when AMP’s growth forecasts are taken into account it means the company trades on a price to earnings growth (PEG) ratio of just 0.63, which is very attractive and is well below the ASX’s PEG of 1.83. From this we can deduce that AMP offers growth at a very reasonable price.
  3. This growth potential means that AMP is all set to increase dividends per share at a rate of 11.4% per annum over the next two years. This could bolster what is an already impressive yield of 4.2% (70% franked) and means that AMP has a considerable amount of potential for income-seeking investors. This, as well as its strong earnings growth and attractive valuation, means that AMP could be worth sticking with over the medium term.

A value price tag + growth + big dividends!

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Motley Fool contributor Peter Stephens does not own shares in any of the companies mentioned.

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