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American Express’s Shareholders Payouts Continue in 2Q16

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Higher yields

American Express’s (AXP) adjusted net profits fell by 6% in 1Q16 on a strong dollar, increased competition, and higher spending. Amex was impacted by an end to its 16-year partnership with Costco (COST).

The company has also been affected by the loss of a major anti-trust case that removes restrictions on merchants that accept its cards. In 2Q16, Amex declared a dividend of $0.29, which is in line with the 2Q15 and year-to-date payout ratio of 23%. These payout ratios are in line with the industry’s ratios.

Amex is deploying its operating cash flows in organic and inorganic expansions, investments in technology, and the development of 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 1Q16, up by 11.5% on a year-over-year basis. This translates to an annualized dividend yield that is 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 Services (DFS): 2.1%

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

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Return on equity declines on spending

American Express generated a return on equity of 23.6% in 1Q16 compared to 29.0% in 1Q15. The company’s risk-based capital ratios were comfortable with a Tier 1 ratio of 13.2% and a Tier 1 divided by risk-weighted assets at 12.0%.

The company’s total assets increased by $4 billion to $159 billion in 1Q16 compared to 1Q15. However, its long-term debt fell to $47 billion, compared to $55 billion in 1Q15.

Repurchases to reward

American Express’s (AXP) 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 ~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 has reduced the company’s average share count by 5%.

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