The board of American Express Company (NYSE:AXP) has announced that it will pay a dividend of US$0.43 per share on the 10th of February. This means the annual payment will be 1.0% of the current stock price, which is lower than the industry average.
American Express' Dividend Is Well Covered By Earnings
The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Before making this announcement, American Express was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.
Looking forward, earnings per share is forecast to rise by 0.1% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 19% by next year, which is in a pretty sustainable range.
American Express Has A Solid Track Record
The company has an extended history of paying stable dividends. The first annual payment during the last 10 years was US$0.72 in 2011, and the most recent fiscal year payment was US$1.72. This implies that the company grew its distributions at a yearly rate of about 9.1% over that duration. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.
The Dividend Looks Likely To Grow
The company's investors will be pleased to have been receiving dividend income for some time. It's encouraging to see American Express has been growing its earnings per share at 12% a year over the past five years. American Express definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.
We Really Like American Express' Dividend
Overall, we think that this is a great income investment, and we think that maintaining the dividend this year may have been a conservative choice. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All of these factors considered, we think this has solid potential as a dividend stock.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 1 warning sign for American Express that investors should know about before committing capital to this stock. We have also put together a list of global stocks with a solid dividend.
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