AMP Ltd (ASX: AMP) shares are becoming a viable option for passive income again because it's seemingly paying every six months. It didn't pay a dividend in 2021 or 2022.
However, while AMP's dividend is recovering, the AMP share price is still far below where it was before COVID-19 – just look at the chart below, it has halved in five years.
In FY22, it paid an annual dividend per share of 2.5 cents, which was increased to 4.5 cents per share in FY23.
Quarterly performance
The broker UBS has issued an updated forecast about where it sees the AMP dividend going in the next few years after seeing the quarterly update for the three months to March 2024.
In that update, AMP said the bank's total loan book dropped to $23.5 billion, down from $24.4 billion in the 2023 fourth quarter. Bank total deposits grew to $21.4 billion, up from $21.3 billion in the fourth quarter of 2023.
AMP's platform net cash flow was $201 million, up 32% from the first quarter of 2023 (of $152 million). Platform assets under management (AUM) increased to $74.3 billion, up from $71.1 billion at the end of the 2023 fourth quarter.
The AMP 'superannuation and investments' AUM rose to $54.1 billion, up from $51.9 billion in the fourth quarter of 2023. Net cash flow reduced to $371 million, down from $610 million in the first quarter of 2023.
In summary, many of the important numbers are heading in the right direction. Let's examine what this may mean for the dividend.
FY24
UBS is expecting the AMP net profit after tax (NPAT) to improve by roughly 10% to $220 million, which would translate into earnings per share (EPS) of approximately 8 cents.
This improvement in profit could allow AMP to deliver a dividend per share of 5 cents. That would translate into a dividend yield of 4.5%, excluding any franking credits.
FY25
UBS is expecting another profit increase in FY25, with net profit rising by 15% to $253 million, which would equate to EPS of approximately 10 cents.
The broker is expecting a large hike of the AMP dividend per share to 7 cents per share in FY25, which translates into a dividend yield of 6.4% at the current AMP share price, excluding any franking credits.
FY26
UBS suggests the 2026 financial year will see flat performance compared to FY25.
FY26 net profit could be $255 million, up just $2 million. The broker is expecting EPS of 10 cents again and a dividend per share of 7 cents.
If that happens, the current AMP share price has an FY26 dividend yield of 6.4% and a forward price/earnings (P/E) ratio of 11.
Is the AMP share price a buy?
At the time UBS wrote the note in April, it reiterated a sell rating on AMP shares with a price target of 98 cents, implying a possible fall of around 10% in the next year. UBS wrote:
On our refreshed forecasts, the stock is trading at 11.6x PE (based on UBSe FY25, inclusive of cost reduction targets), which we do not consider cheap relative to peers and considering the weak earnings outlook. Whilst NTA of $1.31/sh may appear to offer value, we think a material discount is fair given weak sustainable RONTA c.5%.
In other words, AMP is only making a return on net tangible assets (NTA) of around 5%, which the broker thinks is weak, making the NTA of $1.31 per share not as appealing as it looks.
