Expectations Call for Amex’s Yields, Repurchases to Rise in 2017



Moderate dividend yields

American Express’s (or Amex) (AXP) adjusted net profits rose 7% in the June quarter on increased spending, especially in international markets. The company has been impacted by an end to its 16-year partnership with Costco (COST). It has also been affected by the loss of a major antitrust case that removes restrictions on merchants that accept its cards. In the September quarter, revenues and net profits are expected to decline on lower spending and partnerships.

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.

The company declared a dividend of $0.32 per share in 2Q16, an increase of 10% over the previous quarter. This translates to an annualized dividend yield that’s 2% 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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American Express has returned a record amount of capital to its shareholders so far this year. Share repurchases totaled $1.7 billion in 2Q16 and a record $2.8 billion in the first half of 2016. The company now plans to increase its repurchases up to an additional $3.3 billion over the next four quarters.

The company received approval for its capital plan from the Federal Reserve earlier in May 2015. In 2015, the company repurchased 56 million shares, which has reduced its average share count by 5%.

American Express generated a return on equity of 26.4% in 2Q16 compared to 28.1% in 2Q15. The company’s risk-based capital ratios were comfortable with a Tier 1 ratio of 14.2% and a Tier 1 divided by risk-weighted assets of 12.9%. The company’s total assets increased by $3 billion to $160 billion in 2Q16 compared to 2Q15. However, its long-term debt fell to $51 billion compared to $53 billion.


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