Ameriprise Financial – Banking, Asset Management, and Insurance companies have really taken it on the chin in 2016. I understand the fear surrounding banks. Investors are concerned and rightfully so about the size of capital exposure banks have in the energy sector. This makes senses. However I’m not sure why Insurance and Asset Management firms are being dragged down. I’ve been watching Aflac and MetLife. I also recently bought shares of the Principal Financial Group. Earlier in the week I bought shares of Ameriprise Financial. I bought 19 shares of Ameriprise Financial, (NYSE: AMP), at $83.43 per share, totaling $1,585.17. These 19 shares will add $50.92 to my annual dividend income.
I’m attracted to businesses in this sector because they generally maintain high dividend coverage ratios. Having been through two recent dividend cuts in the energy sector, I was looking for a company with plenty of cash to cover dividends. Ameriprise Financial has a trailing twelve month dividend coverage ratio of 440% and a payout ratio of 22.73%. Ameriprise has shown fantastic revenue and assets under management growth the past five years. Additionally, Ameriprise has increased dividends seven times in five years and has a track record of share buybacks. There is a lot to like about this company.
Ameriprise Financial Company Overview
Ameriprise Financial, Inc. (Ameriprise Financial) is a holding company primarily engaged in business through its subsidiaries. Ameriprise Financial is a diversified financial services company that offers financial solutions to individual and institutional clients. The Company operates in four segments: Advice & Wealth Management, Asset Management, Annuities and Protection. The Advice & Wealth Management segment provides financial planning and advice, as well as full-service brokerage services, primarily to retail clients through advisors. The Asset Management segment provides investment advice and investment products to retail, high net worth and institutional clients on a global scale through Columbia Management and Threadneedle. The Annuities segment provides variable and fixed annuity products of RiverSource Life companies to individual clients. The Protection segment offers a variety of products to address the protection and risk management needs of retail clients.
Ameriprise Financial Dividend History
- Annual Dividend Yield of 3.10%
- Annual Dividend Rate (IAD) $2.68
- Payout Ratio (TTM) of 22.73%
- Dividend Coverage Ratio (TTM) of 440%
- 3 Year Dividend Growth Rate of 31.1%
- 5 Year Dividend Growth Rate of 29.5%
- 10 Year Dividend Growth Rate of 37.1%
Ameriprise’s three year dividend growth rate of 31.1% is 13.5% higher than its sector average of 17.59%
The chart below shows the past eight years of AMP annual dividend increases. The past five years AMP has increased dividends seven times.
Ameriprise Financial Valuation
- S&P Capital IQ ranks Ameriprise Financial 3-stars, with a fair value calculation of $92.10 and a 12-month target price of $100.
- Morningstar ranks Ameriprise Financial 4-stars, with a fair value of $135.
The F.A.S.T Graph below shows that Ameriprise Financial is well below the orange and blue lines. For those of you unfamiliar with this tool, when the black line falls below the orange line this indicates a stock is trading below the market standard P/E Ratio of 15. If the black line falls below the blue line this indicates a stock is undervalued and is trading below its normal P/E Ratio. Ameriprise normally trades at an average P/E of 13.0. Today the stock is trading at a 9.6 P/E Ratio. Based on the graph below AMP is an undervalued stock.
The market is extremely volatile lately. Financials and Insurance are taking a beating. I’ve been taking advantage by buying shares of BNS and PFG. Ameriprise stock price has dropped 36% the past year. I think this stock is undervalued. Ameriprise Financial has substantially increased its dividend year-over-year, while still maintaining a very low payout ratio. I believe the company has legs and there is room for it to run. Ameriprise Financial is a welcomed addition to my portfolio.
What do you think of my Ameriprise Financial stock buy? Are you buying financial stocks?
Full Disclosure: Long AMP