uploads///return on shareholder equity

Efforts to Reward Shareholders Aren’t Supporting AXP’s Stock

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Apr. 4 2016, Updated 6:04 p.m. ET

Higher dividends

American Express’s (AXP) adjusted net profits fell by 12% in 4Q15 on a strong dollar and increased competition. The company was impacted by an end to its 16-year partnership with Costco (COST) and by the loss of a major antitrust case that removed restrictions on merchants that accepted its cards.

As a result, CEO Kenneth Chenault is deploying the company’s operating cash flows in organic and inorganic expansions, investing in technology, and developing new partnerships. The company is 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 4Q15, up by 11.5%. This translated to an annualized dividend yield that was 1.8% higher than the industry average. The company’s peers have the following dividend yields:

  • Mastercard (MA): 0.7%
  • Visa (V): 0.7%
  • Discover Financial (DFS): 2.1%

Together, these companies account for 2.3% of the Technology Select Sector SPDR ETF (XLK).

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Lower RoE

American Express generated a return on equity of 24.0% in 4Q15 compared to 29.1% in 4Q14. The company’s risk-based capital ratios were comfortable, with a Tier 1 ratio of 13.5% and Tier 1 divided by risk-weighted assets at 12.4%.

The company’s total assets rose by $2 billion to $161 billion in 4Q15 compared to 4Q14. However, its long-term debt fell to $48 billion in 4Q15 compared to $58 billion in the prior year’s quarter.

Higher repurchases

From time to time, American Express’s board of directors has approved the repurchase of up to 150 million common shares. The plan replaces the previous 150 million share repurchase program that 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 2015, the company repurchased 56 million shares, which reduced its average share count by 5%.

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