Are AMP shares about to turn into a dividend gold mine?

A dividend stream could turn into a river in the next few years.

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Key points

  • AMP’s main operating businesses are improving their performance
  • The ASX financial share is expected to steadily grow its annual dividend over the next three years
  • By FY25, it could be paying a dividend yield of close to 6%

AMP Limited (ASX: AMP) shares have seen a significant amount of shareholder wealth wiped out. In the past five years, the company's share price is down by around 70%, as we can see on the chart below.

Created with Highcharts 11.4.3Amp PriceZoom1M3M6MYTD1Y5Y10YALL1 Jul 201818 Jul 2023Zoom ▾Jul '18Jan '19Jul '19Jan '20Jul '20Jan '21Jul '21Jan '22Jul '22Jan '23Jul '232019201920202020202120212022202220232023www.fool.com.au

Ouch. AMP shares also stopped paying dividends in March 2019, only resuming its shareholder payouts with a partially franked dividend of 2.5 cents a share in April 2023.

However, the company has done considerable work since the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry handed down the damning findings against it.

This includes selling some parts of its business and turning around the divisions it's retaining.

Business performance improving

In AMP's quarterly update for the three months to 31 March 2023, it revealed a number of promising updates.

It said that continued disciplined growth in AMP Bank had seen the loan book increase by $0.2 billion to $24.2 billion.

Over the same period, its Australian wealth management (AWM) assets under management (AUM) increased $2 billion over the quarter to $126.2 million. AWM net cash outflows improved by more than 30% year over year, driven by "further stabilisation of 'Master Trust' outflows".

AMP also said independent financial advisor inflows to its superannuation and investment business North continue to grow, up 30% year over year.

The company's New Zealand wealth management division KiwiSaver's net cash flows increased to $44 million.

It appears the ASX financial share is building momentum and this could enable the AMP board to pay regular dividends to investors.

AMP shares expected to pay dividends

Noting that momentum, the current Commsec forecast is that AMP could generate earnings per share (EPS) of 7 cents in FY23. That's forecast to rise to 8.5 cents in FY24 (a projected growth of 21%) and 9.3 cents in FY25 (a projected year-over-year growth of 9.4%).

With expectations of ongoing profitability and growth, AMP is expected to pay an annual dividend per share of 4.1 cents. Excluding franking credits, this would be a dividend yield of 3.9%.

In FY24, the annual dividend per share could then rise by 27% to 5.2 cents per share. This would be an appealing dividend yield (excluding franking credits) of 4.9%.

Commsec numbers suggest the business could pay an annual dividend per share of 5.9 cents, which would be growth of just over 13%. This would be a dividend yield of 5.6%, excluding the effect of franking credits.

Foolish takeaway

Profit growth and dividend growth could significantly improve the chance of good shareholder returns from AMP in the next few years. If underlying earnings keeps rising, this can enable investors to receive more cash dividends. This, in turn, might push the AMP share price higher. Time will tell if the forecasts are correct.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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