Following a modest first-quarter 2013 earnings, American Express Co. (AXP - Analyst Report), also known as AmEx, announced a 15% hike in its dividend payout last week. The increase is an attempt to return excess wealth to investors, thereby raising their confidence in this Zacks Rank #3 (Hold) stock.
Accordingly, AmEx raised its regular quarterly dividend by 3 cents to 23 cents per share from 20 cents, which is payable on Aug 9, 2013 to the shareholders of record as on Jul 5, 2013. This marks the second dividend hike by the company since Nov 2007.
Prior to this, AmEx had increased its dividend by 11% in Mar 2012, after passing the annual capital stress test in the U.S. with flying colours. In Mar 2013, the company again emerged as one of potential banking bellwethers to withstand an economic shock.
The ongoing volatile economic environment and intense competitive pressure restrict AmEx’s investment opportunities for any business expansion. Hence, the board aims to deploy excess capital to its shareholders through share buybacks and dividend increment.
While AmEx repurchased shares worth $802.5 million in the first quarter of 2013, it successfully attained the approval from the Federal Reserve to buy back shares worth $3.2 billion in 2013, followed by another $1.0 billion of share repurchase in the first quarter of 2014. In Mar 2013, the board of AmEx also authorized a share repurchase program worth 150 million shares, thereby replacing the prior one.
The company returned 70% of its capital generated in the first quarter of 2013, to shareholders via share buybacks and dividend payouts. On a cumulative basis, AmEx has distributed 66% of capital generated through dividends and share buybacks since its inception in Dec 1994.
In Feb 2013, arch rival – MasterCard Inc. (MA - Analyst Report) had declared a 100% hike in quarterly dividend. The company also sanctioned a new share repurchase program worth $2.0 billion, which has become effective now.
Simultaneously, in the same month, another close peer – Visa Inc. (V - Analyst Report), a Zacks Rank #2 (Buy) stock – sanctioned a new share repurchase program worth $1.75 billion. In Oct 2012, Visa hiked its dividend by 50%.
Holding a strong liquidity and healthy capital ratios, we believe that the recent expansion in AmEx’s capital deployment is also in concurrence with maintaining its market position and shareholder confidence. Another strong performer in the financial transaction services sector include Heartland Payment Systems Inc. (HPY - Snapshot Report), which carries a Zacks Rank #2 (Buy).