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High-Yielding Ameriprise Financial Can Beat Market

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By Friday, 21 December 2018 01:51 PM Current | Bio | Archive

The S&P 500 Index has declined 7% so far in 2018. Certain market sectors have seen even worse returns, as volatility has returned to the markets. While many high-Beta stocks outperformed the market during the nearly decade-long bull market, they also tend to suffer bigger declines when markets drop.

Volatility works both ways, as evidenced by the sharp decline in shares of Ameriprise Financial (AMP). Ameriprise stock is 43% from their 52-week high. But if the market rebounds in 2019 and beyond, Ameriprise’s high Beta value means the stock could outperform. Plus, the stock has an attractive 3.4% dividend yield and a low stock valuation, meaning Ameriprise could bring outsized returns to investors over the next several years.

Why Beta Matters

One of the most commonly utilized measures of volatility is a stock Beta value. Investors anticipating a rise in the markets can use Beta to help identify the stock market’s potential winners. Ameriprise stock has a Beta value of 1.80, meaning for every 1% increase or decrease in the S&P 500 Index, Ameriprise shares can be expected to move 1.80% in the same direction. This makes Ameriprise among the highest-Beta stocks in the S&P 500 Index.

While a high Beta value served Ameriprise investors poorly during the recent market downturn, it could help the stock outperform if the S&P 500 recovers in the upcoming years. Ameriprise Financial is a financial services company, with over $900 billion in assets under management. Its operating segments include Advice & Wealth Management, Asset Management, Annuities, and Protection; which includes life, health, home, and auto insurance products.

Despite the steep decline in Ameriprise shares this year, the company continues to perform well. Ameriprise’s most recent quarterly results showed 9% revenue growth, driven by strong performance of the company’s advice and wealth management services. Adjusted operating earnings increased by 13% while adjusted operating earnings per diluted share rose by 20%.

And yet, the market has continued to sell off the stock. But this is why Ameriprise shares could be a buying opportunity. The company continues to generate growth in assets under management. Although a continued decline in the stock market would be a headwind for asset growth, the aging U.S. population will result in increased demand for financial services and retirement planning for many years.

Considering Ameriprise’s strong growth, the shares appear to be significantly undervalued. Based on full-year expected earnings, the stock trades for a price-to-earnings ratio of 8.7, a very low valuation for a highly profitable and growing business. In addition, the stock should generate high earnings growth, plus it has a 3.4% dividend yield. Add it all up, and total annual returns could reach 15% or more, due to earnings growth, dividends, and an expanding valuation multiple.

Final Thoughts

As the saying goes, a rising tide lifts all boats. In the stock market, the reverse is also true. High-Beta stocks with above-average volatility will often sink faster than the market index. But if the stock market returns to gains next year and beyond, high-Beta stocks like Ameriprise could be among the outperformers. Plus, Ameriprise’s strong earnings growth and 3.4% dividend yield will reward shareholders even in a sideways market.

Ben Reynolds is CEO of Sure Dividend. Sure Dividend helps individual investors build high quality dividend growth stock portfolios for the long run.

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BenReynolds
Ameriprise stock is 43% from their 52-week high. But if the market rebounds in 2019 and beyond, Ameriprise’s high Beta value means the stock could outperform.
high, yielding, ameriprise, financial
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2018-51-21
Friday, 21 December 2018 01:51 PM
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