Higher return on equity
American Express (AXP) generates a return on equity between the high 20s and low 30s. The company generated a return on equity of 26.8% in 3Q15 as compared to 28.8% in the prior year’s quarter.
The company’s risk-based capital ratios were comfortable with a Tier 1 ratio of 14.3%, and Tier 1 divided by risk-weighted assets at 13.2%. Its total assets remained unchanged at $154 billion in 3Q15. However, its long-term debt fell to $49 billion in 3Q15 as compared to $56 billion in the prior year’s quarter.
New partnerships, dividends
American Express’s net profits fell by 14% in 3Q15 on higher expenses, a strong dollar, and new initiatives. The company has been impacted by an end to its 16-year partnership with Costco (COST) and the loss of a big antitrust case that removes restrictions on merchants that accept its cards.
As a result, the company is deploying its operating cash flows in organic and inorganic expansions, investing in technology, and catering new partnerships. It’s also using its cash flows to reward its shareholders through dividends and share repurchases.
American Express declared a dividend of $0.29 per share in 3Q15, up by 11.5%. This translates to an annualized dividend yield that is 1.5% higher than the industry average. The company’s peers have the following dividend yields:
Together, these companies account for 1.9% of the iShares Core S&P 500 ETF (IVV).
American Express’s board of directors has approved the repurchase of up to 150 million common shares from time to time. The plan replaces the previous 150 million share repurchase program, which had approximately 45 million shares of common stock remaining under board authorization.
The company received approval for its capital plan from the Federal Reserve earlier in May 2015. During 3Q15, the company repurchased 18 million shares, 1.8% of its total outstanding shares, at an average price of $76.47 per share. This compares to a repurchase of 13 million shares at an average price of $88.49 per share in 3Q14.