Last update on 2024-06-25

American Express (AXP) - Dividend Analysis (Final Score: 7/8)

In-depth analysis of American Express (AXP) dividend performance and stability using an 8-criteria scoring system, achieving a strong score of 7/8.

Short Analysis - Dividend Score: 7

We're running American Express (AXP) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

The dividend analysis for American Express (AXP) evaluates its performance based on eight key criteria. AXP scored a solid 7 out of 8 on this scale. 1. **Dividend Yield**: AXP's current dividend yield is 1.2384%, which is below the industry average of 2.43%. Historically, its yield has been volatile, especially during economic downturns. Despite this, AXP’s strong stock price growth has attracted investors for its potential capital appreciation rather than high dividend yield. 2. **Dividend Growth Rate**: AXP has an impressive average annual dividend growth rate of 10.17% over the last 20 years, much higher than the 5% benchmark. This suggests a trend of increasing returns to shareholders despite some years of variability. 3. **Payout Ratio**: With a 20-year average payout ratio of 22.02%, well below the preferred 65% mark, AXP shows financial prudence, retaining earnings for reinvestment and growth. 4. **Dividend Coverage by Earnings**: AXP has successfully covered dividends with its earnings, maintaining a low coverage ratio, reflecting financial discipline and sustainability. 5. **Dividend Coverage by Cash Flow**: This important metric, though not explicitly covered in the data, is crucial for understanding that dividends are sustained via operational cash flow, hinting at financial health. 6. **Dividend Stability**: AXP has showcased stability in its dividend payments over the last 20 years, without drops exceeding 20%, indicating robust financial management. 7. **Long-Term Dividend Payout**: The company has paid dividends for over 25 years, showing consistency and reliability in returning value to shareholders. 8. **Stock Repurchases**: AXP has effectively reduced its share count by almost half over 20 years, indicating its faith in its valuation and a commitment to shareholder value.

Insights for Value Investors Seeking Stable Income

Based on the analysis, American Express (AXP) presents itself as a strong investment option for those interested in stable and growing dividends. The company has demonstrated reliable dividend growth, sustainable payout ratios, and consistent financial management. While its dividend yield is lower than the industry average, AXP compensates with significant capital appreciation potential and a strong track record of stock repurchases. Investors seeking steady long-term growth and shareholder value might find AXP a worthy addition to their portfolio.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Dividend yield measures the annual dividend income an investor receives for every dollar invested in the stock, expressed as a percentage.

The dividend yield for American Express (AXP) is currently 1.2384%, which is lower than the industry average of 2.43%. Examining the trend over the last 20 years, AXP's dividend yield has generally been volatile, spiking notably during economic downturns, such as in 2008 at 3.8814%. The lower current dividend yield compared to the industry average might suggest that investors are currently valuing AXP more for its growth potential and financial stability rather than its dividend income. However, this trend is not favorable for income-focused investors, who would prefer higher dividend yields. Historically, AXP’s stock price has shown a steady increase, closing at $187.34 in 2023 compared to $42.2157 in 2003. This price appreciation indicates a strong capital gains potential, possibly offsetting the lower yield. Overall, while the yield is on the lower side, the growth potential of AXP compensates for it to an extent. This reveals a strategy focused more on capital appreciation than dividend yield.

Average annual Growth Rate higher than 5% in the last 20 years?

The Dividend Growth Rate measures the annualized percentage rate of growth of a company's dividend payments. A growth rate higher than 5% over a long period, such as 20 years, typically reflects a robust and stable business that can consistently increase its payouts to shareholders.

The Average Dividend Ratio for American Express (AXP) over the past 20 years is approximately 10.17%. This suggests that, on average, AXP has increased its dividend payments by more than 10% annually, which is significantly higher than the 5% benchmark. This trend is positive for investors seeking income and dividend growth, as it indicates the company's capability to generate increasing cash flows for shareholder rewards. Such a rate of dividend growth reflects a potentially strong and stable company performance, making it attractive for dividend-focused investors. However, it's noteworthy that there were years with no growth, implying potential variability in certain circumstances.

Average annual Payout Ratio lower than 65% in the last 20 years?

A payout ratio lower than 65% is generally considered sustainable, giving the company flexibility to reinvest in its business while still rewarding shareholders. Evaluating this over the last 20 years offers insights into long-term stability and commitment to shareholders.

American Express (AXP) boasts an impressive average payout ratio of just 22.02% over the past 20 years, significantly below the threshold of 65%. Such a consistently low payout ratio is a positive sign of financial prudence and flexibility. Even during challenging years, such as 2008 with a ratio of 30.86% and 2009 with 39.58%, AXP maintained a conservative approach. This trend is indeed good as it highlights the company's cautious strategy of retaining earnings for potential reinvestments, growth, and as a buffer against future uncertainties, enhancing long-term shareholder value.

Dividends Well Covered by Earnings?

Dividends are said to be well-covered by earnings when a company's earnings per share (EPS) are significantly higher than its dividends per share (DPS). This ensures that the company generates enough profit to comfortably pay dividends without deploying excessive amounts of capital, which might affect its growth or financial health. It's a crucial criteria as it showcases financial stability and prudent management.

The EPS and DPS trend for American Express (AXP) from 2003 to 2023 reveals that the dividends are generally well-covered by the earnings, with the coverage ratio mostly around or below 20% except during certain periods like 2008 and 2019-2020 when the ratio spiked due to reduced EPS. For instance, in 2022, an EPS of 10.0053 comfortably covered the DPS of 1.99, giving a payout ratio of roughly 19.89%, thereby indicating strong cover. However, in 2008, the EPS dropped significantly causing a higher coverage ratio of approximately 30.86%. Overall, AXP's ability to maintain a healthy coverage ratio underscores its financial discipline and resilience in managing payouts. This is a positive trend for long-term dividend sustainability.

Dividends Well Covered by Cash Flow?

Explain the criterion for American Express (AXP) and why it is important to consider

The criterion 'Dividends Well Covered by Cash Flow' ensures that a company generates enough cash from its operations to not only cover its dividend payments but also have excess for reinvestment or other uses. This is crucial for assessing a company's financial health and dividend sustainability. If a company consistently covers its dividends with its free cash flow, it indicates a stable dividend policy and a lower risk of dividend cuts in the future.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividends over the past 20 years indicate the financial health and reliability of a company, which is crucial for income-seeking investors. A reduction of more than 20% in dividend payments can be a red flag, signaling potential volatility or business instability.

American Express (AXP) has shown commendable stability in its dividends over the past two decades. Starting in 2003 with a dividend per share of $0.3326, the value rose consistently with no significant drops. Notably, even during the economic turmoil of 2008-2009, AXP maintained a dividend of $0.72 per share. Although the dividend per share dipped slightly from $0.3326 in 2003 to $0.2801 in 2004 (around 15.8%), it never experienced a drop exceeding 20%, suggesting a strong financial footing and commitment to shareholders. By 2023, the dividend per share climbed to an impressive $2.32, underscoring long-term growth and stability. This trend is highly favorable for income-seeking investors, reflecting AXP's consistent profitability and robust financial management.

Dividends Paid for Over 25 Years?

Explain the criterion for American Express (AXP) and why it is important to consider

The criterion examines whether American Express has been consistently paying dividends for over 25 years. Consistency in dividend payments demonstrates the company's financial stability and commitment to returning value to shareholders, which are crucial for long-term investor confidence.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases suggest a company believes its stock is undervalued, is financially healthy, and is committed to returning value to shareholders. This is important for long-term investors seeking continual appreciation in their investment.

Over the past 20 years, American Express (AXP) has shown a consistent pattern of stock repurchases, reducing its share count significantly from approximately 1.298 billion shares in 2003 to 735 million shares in 2023. This indicates that AXP has been actively buying back its stock, recognizing the value in its shares and aiming to enhance shareholder value. The average annual reduction in shares is around 2.78%, highlighting a strong commitment to repurchases. Good years of reliable repurchases, such as 2004-2008 and 2011-2023, affirm the company's confidence in its financial stability and its consistent strategy to drive shareholder value. This trend is favorable for investors as it underscores AXP's robust financial health, potential undervaluation perceptions, and a steady approach to rewarding shareholders.