In the first round of the ASX World Cup theme, we have an insurer and wealth management company going head to head. Here's how the two have been performing recently and what investors can look to see in growth and returns.
AMP Limited (ASX: AMP)
The $15.8 billion wealth management and insurance company is well known for financial planning and superannuation, but also has a banking arm, so its service coverage is extensive.
Since the Global Financial Crisis, the stock hasn't recovered back to previous price levels, but since early February 2014 it gained 30% to $5.35. It has a 4.5% dividend yield.
– FY 2013 full year results
Underlying net profit was down 11% to $849 million. Its wealth management division earnings were up 16%, benefiting from higher investment returns from rising financial markets.
Its insurance business was down 66% due to worsening insurance claims and a rise in customers letting insurance coverage lapse. These two factors are occurring across the insurance industry, so AMP is not alone on this.
Its Mature Division that deals in superannuation and annuity services was up 7%. People are putting more into Super and want to prepare for their retirement, which increases funds under management and lifts business earnings.
– Consolidate market position, simplify business
The company has strengthened its market position by its recent acquisition of AXA Asia Pacific Holdings and is simplifying its business. Although 2013 results were down, the market is giving the stock a lift because the company is making necessary changes.
Suncorp Group Ltd (ASX: SUN)
The $17.3 billion insurer and banking company also had a down year in 2013, but its share price has risen 67% from about $8 to $13.43 since mid-2012. It has a 5.1% dividend yield.
– First half results
Its first half net profit was down 4.5% from the previous corresponding period. It also saw its life insurance division decline due to higher levels of policy lapses and claims, yet it only makes up about 10%-15% of group revenue and earnings.
Its general insurance division is much larger and with a great improvement in its banking business, much of the earnings fall was offset.
– Company restructure and rising dividends
The company's simplification program is restructuring the business and is projected to create about $265 million in cost savings by 2016. It did declare a $500 million writedown on life insurance assets, but the company said this would not affect 2014 full year cash earnings and dividend payments.
Interim dividends were up 40% to 35 cents per share. The company stated that it plans for a higher dividend payout ratio of about 60%-80% for the full year. There may also be a capital return to shareholders in the future, which could be as a dividend or share buyback.
Which stock to prefer
I believe that Suncorp is a stronger choice going forward. Its general insurance business can grow and make up for the smaller life insurance business until it can recover.
Investors could get a better dividend yield and look forward to potentially higher dividend income.
