American Express Co. (AXP - Analyst Report) has approved the repurchase of up to 150 million common shares, This authorization replaces the prior 150 million share repurchase program that had approximately 50 million shares of common stock remaining under board authorization.
American Express also approved a 10% hike in its quarterly dividend to 32 cents per common share from 29 cents. This increased dividend will be paid on Nov 10, 2016 to shareholders of record on Oct 7, 2016.
These announcements are in sync with American Express' capital plan submitted to the Federal Reserve as a part of the 2016 Comprehensive Capital Analysis and Review (“CCAR”). The plan was to return up to $4.4 billion in the form of dividends and share repurchases over the next four quarters. CCAR is a framework by the Federal Reserve that assesses, regulates and supervises large banks and financial institutions. Other card issuers Capital One Financial Corporation (COF - Analyst Report) and Discover Financial Services (DFS - Analyst Report) also underwent CCAR and received non-objection from Federal Reserve with respect to their proposed capital actions.
The capital plan by American Express was passed by the government, signifying that the company possesses adequate capital and that its capital structure is stable under various stress-test scenarios. It also implies that planned capital distribution, in the form of dividends and share repurchases, is viable and acceptable in relation to the regulatory body’s minimum capital requirements.
With this announcement, American Express has delivered what it promised and has brought some relief for its investors, who were otherwise pessimistic over the stock that is caught in a web of trouble. While the company passed its capital strength test and brought its investors some much-needed respite, other fundamental and economic troubles facing it continue to bother.
In 2015, the company increased its quarterly dividend by 12% to 29 cents per share. In May 2014, the company had instituted a 13% increase in its quarterly dividend to 26 cents per share. This increase was initiated by the company after the Federal Reserve approved its capital plan submitted that year in March.
The most recent dividend hike is the fourth by the company since Nov 2007.
While maintaining healthy capital ratios, management aims to pay out more than 50% to investors through dividends and share buybacks.
Over the past few years, AmEx has efficiently held a strong capital position with a Tier 1 risk-based common ratio of 14.2% at the end of second quarter 2016, 13.5% at 2015, 13.6% at 2014 end, 12.5% at 2013 end, 11.9% at 2012 end, 12.3% at 2011 end and 11.1% at 2010 end. Each of these have been comfortably above the current 10% regulatory requirement as per Basel II and the final U.S. capital rules.
Currently, AmEx carries a Zacks Rank #3 (Hold).
A better-placed stock in this space is CIT Group Inc. (CIT - Analyst Report) , which has seen a 1.2% rise in its 2016 Zacks Consensus Estimate to $3.22 earnings per share over the past 60 days. The stock carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>