Ameriprise Financial Stock: Grow your portfolio with this rapid growth (NYSE: AMP)
Asset managers are one of the best places to invest in times of inflation because money has a way of “going up” in the direction of rising asset prices. This is reflected in significant growth in assets under management among asset managers, including T. Rowe Price (TROW), which I highlighted in a recent article here.
This brings me to Ameriprise Financial (AMP), which I last visited in the fall of 2020. The stock has performed admirably since then, delivering a total return of 105%, far outpacing the 33% upside. % of the S&P 500 (SPY) over the same time frame. This article explains why AMP remains a good buy and is poised for continued growth.
Improve your portfolio with this fast producer
Ameriprise is primarily an American asset manager that provides advisory and wealth management, asset and retirement management, and protection solutions. It spun off from American Express in 2005 and has one of the largest networks of branded advisors in the industry, with around 80% of its revenue coming from its asset and wealth management segments.
Approximately 90% of AMP’s pre-tax profits are derived from the United States, and its financial products include US mutual funds and ETFs, annuities, individually managed accounts, and real estate and infrastructure funds. Asset managers have seen a windfall for their businesses since 2020, and that continued into December.
As seen below, well-known managers T. Rowe Price, Franklin Resources (BEN), Invesco (IVZ) and Lazard Ltd (LAZ) experienced impressive growth in assets under management ranging from 2.0% to 3.7% month-over-month in December.
Ameriprise is no stranger to growth as it saw 29% growth in its assets under management on a year-over-year basis between the fourth quarters of 2020 and 2021. Excluding assets acquired by Bank of Montreal (BMO) in In the EMEA region, its growth in assets under management was still an impressive 16% year-on-year, as shown below. .
These results were driven by strong growth in Wealth and Asset Management (WAM), with client inflows up 29% year-on-year to $12.5 billion in the fourth quarter. AMP also has significant advantages of scale through its large network of advisors, and this is reflected in its 20% growth in TTM revenue per advisor, from $666 in Q4’20 to $796 in Q4’21.
This contributed to a 420 bps year-over-year improvement in WAM’s operating margin to 28.3%, translating into 45% year-over-year growth in WAM’s operating profit, as shown below .
Looking ahead, AMP has more avenue for growth, as it recently added 86 highly productive advisors during the fourth quarter. In a recent survey conducted by the company, 90% of recently joined advisors noted that Ameriprise had better client-facing technology and better financial capabilities to serve clients than their previous firms.
Notably, AMP was named the most trusted wealth manager by Investor’s Business Daily in 2021, and clients rated the company 4.9 out of 5 for overall client satisfaction. In addition, management sees a significant increase in deposit base growth in conjunction with rising rates, as noted during the recent conference call Q&A session:
Q: When you think about cash at bank, it saw a nice increase and a slight acceleration from the previous pace this quarter. Then clearly what we’ve seen in the rates market is an increase in aggressiveness, outlook and forward curve.
So was the acceleration of deposit transfers to the bank due to the improving environment, and do you have the ability to pick up the pace before the $3 billion to $5 billion a year pace that you have previously stated? And where are the reinvestment rates within the bank at this point?
A: Of course, so we certainly have the capacity, and we certainly have a plan to increase the amount of the transfer from off balance sheet to balance sheet and with the current environment and looking at that and especially with the expected increase in the Fed, you can get high quality investments like we do and reach 100%. So it’s an opportunity.
The answer is that we have the capacity, a good rally in the yield curve. But now you also get the variable of having higher profits coming off the balance sheet on the fed funds side. So that’s going to be an interesting evaluation point. But certainly, it is a plus point for us in all aspects.
Meanwhile, AMP maintains a strong A-rated balance sheet with $2.4 billion in cash available for the holding company and $2.0 billion in excess capital. This confirms AMP’s strong track record of dividend growth with a 5-year CAGR of 8.7% and 15 years of consecutive increases. The current dividend yield of 1.5% is well covered by a low payout ratio of 18% (based on forward EPS of $24.90).
AMP should also be considered a total return story, as it returns 90% of its operating profits to shareholders, generating an operating return on equity of 50.6%, and over the past 5 years has reduced its number of shares by 27%.
Risks to AMP include general economic weakness, which could affect asset valuations and AMP’s assets under management. Additionally, competitive offerings in passive and active management investing can result in fee compression. Finally, lower interest rates could lead to lower revenues that AMP is able to generate on its deposit base.
I see value in AMP at the current price of $303 with a forward PE of 12.2, slightly lower than its normal PE of 12.8 over the past decade. This accounts for the aforementioned strength in AMP activity and underlying growth. Additionally, analysts expect respectable annual EPS growth of 10.4-15.7% over the next 2 years and have a consensus Buy rating with an average price target of $352, as shown. below.
Key takeaway for investors
Ameriprise Financial is operating on all cylinders, with robust growth in its wealth management business. It also benefits from its large size and sees growth in revenue per advisor as well as growth in operating margin.
AMP is also positioned to benefit from rising interest rates. In the meantime, it maintains a robust capital return program for shareholders. I see value in AMP at the current price for potentially strong long-term returns.