Is AMP Limited a buy at this share price?

The share price of blue chip wealth management company AMP Limited (ASX: AMP) is still languishing 14.5% below where it was trading one year ago despite rallying 9% so far in March.

Value investors will rightly point out that in the past year peers such as Commonwealth Bank of Australia (ASX: CBA) and Suncorp Group Ltd (ASX: SUN) have also performed poorly, falling by similar percentages. On a five-year view however, the 10% gain in AMP’s share price has vastly underperformed the 50% share price rise of these two peers.

For this reason, AMP could arguably be a more compelling value investment opportunity.

Here are four reasons to be positive on the stock:

  1. Dividends – In 2015 AMP increased its total dividend for the year by 8% to 28 cents per share (cps). This equates to a trailing dividend yield of 4.8%.
  2. Profit growth – In 2015 AMP grew its underlying profit by 7% to $1.1 billion. This is the highest profit achieved in the past five years.
  3. Positive operating metrics – Over the course of 2015 AMP achieved a 5% increase in net cashflows onto AMP platforms; a 6% increase in assets under management, and a 19% increase in external net cashflows.
  4. Outlook – The group is aiming to achieve growth through its substantial Australian financial advice, superannuation, insurance, banking and self-managed super fund businesses. AMP is re-focussed on its customers and is also implementing cost reductions and expanding offshore.

Buy, hold, or sell?

With the group reporting underlying earnings per share of 37.9 cps for 2015, the stock trades on a trailing price-to-earnings ratio of 15.3 times.

While that looks about fair value for a slow growing blue chip, if the group can achieve a growth rate above market expectations then there could be upside for the shares from current levels at $5.80.

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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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