AMP Limited (ASX: AMP) shares have been one of the great disappointments over the past decade. The AMP share price is now at $1.40 — down from over $10 in 2007.
While the new management team’s divestments and cost-cutting might finally begin to bear fruit for the company and shareholders, I reckon it would take a brave investor to bet on this turnaround. As Warren Buffett famously quipped, “turnarounds seldom turn”.
However, we should never say never. As fund manager Lawrence Lam told me in a recent episode of The Australian Investors Podcast, some companies are capable of impressive turnarounds if their management team is small and aligned, focused on growth, and operated by a founder or family. I’ll leave it up to you to decide if AMP meets that criteria.
Will AMP pay a dividend?
AMP is expected to release its 2020 half-year financial report on Thursday, alongside other blue chips such as Telstra Corporation Ltd (ASX: TLS).
According to data from Bloomberg, analysts expect AMP to reveal a net loss of $128 million — and no dividend.
Okay, that’s not great. But how about if we turn our attention further out? To, say, 1-2 years into the future. Is AMP expected to pay a dividend next year?
Over its full 2020 financial year (FY20), no dividend is expected by analysts surveyed by Refinitiv. However, in FY21 analysts are suggesting AMP could pay full-year dividends of around 6 cents per share. If that happens it might be fair to say that AMP shares could be good value today.
However, I wouldn’t rely on that forecast.
But let’s play along…
If we plug the dividend of 6 cents per share in a dividend discount model (see our explainer of dividend discount valuation models), and assume the dividend grows at 3% per year with an 11% discount/risk rate, a simple back-of-envelope valuation of AMP shares is around $0.67. Less than half the current AMP share price.
Of course, if we assume faster growth or a larger dividend next year then the valuation will uptick. For example, at 5% growth, the valuation jumps to $1 per share. This is all hypothetical of course.
Other dividend share ideas
AMP’s management team could orchestrate a dramatic turnaround and the business could be very valuable. Indeed, AMP should be a more profitable business since it operates in the financial services industry and has a number of good assets. For a speculative investment, and after a few days of proper research, I could be able to bring myself to own a small number of shares in my portfolio. However, right now, I’m not willing to bet on AMP. Especially when there are other ASX growth shares that are far more impressive.
Indeed, if I were looking for dividend income, I think there are better shares on offer on the ASX, as well as low-cost and diversified ASX ETFs which should provide a more reliable income stream. If you’re interested in dividend shares, be sure to use your web browser and bookmark our ASX dividend shares page for daily ideas.
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