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AmEx to Up Dividend, Share Buyback Post Stress Test Clearance


American Express Co. AXP announced that it will increase the quarterly dividend by 11.4% to 39 cents per share, beginning the third quarter. It also plans to repurchase up to $3.4 billion of common shares during the CCAR (Comprehensive Capital Analysis and Review) approval period of the third quarter of 2018 through the second quarter of 2019.

This announcement came on the back of a “no-objection” nod received by the company from the Board of Governors of the Federal Reserve System to its capital plan submitted recently. The plan submission was part of the 2018 CCAR.

A regulatory framework of the Federal Reserve, CCAR assesses, regulates and supervises large banks and financial institutions. American Express is subject to this regulatory framework, given its huge operations and global presence.

The passage of American Express’ capital plan bears testimony to the company’s adequate capital possession as well as its stable capital structure under various stress-test scenarios. The green signal also implies that planned capital distributions, such as dividends and share repurchases, are viable and acceptable in relation to the regulatory body’s minimum capital requirements.

Some other companies having announced a quarterly dividend  raise and a share buyback boost post passing the Fed Stress Test are JPMorgan Chase &Co. JPM and Citigroup Inc. C

American Express recovered well recently after losing out a major client, Costco Wholesale Corp. COST, to Visa. Factors like inking a number of co-brand deals, a strong economy, increasing consumer spending helped aiding the company’s earnings. Other measures such as  businesses streamlining, a curb in expenses, rolling out of new benefits and perks on credit cards and escalating marketing expenditure to win new clients also bolstered the company’s profitability.

These strategic moves paid off to some extent, evident from a share price rally of 17% in the past year compared with the  industry’s growth of 1.54%.

 

A couple of days ago, the company announced to launch a co-branded credit card with Amazon.com, targeting small businesses. This reflects its efforts to optimally utilize the immense growth potential in the U.S. small business credit markets.

Also, last week, the company got a relief after the Supreme Court ruled in its favor on the anti-trust case around card steering rules. This has allowed American Express to retain the anti-steering clause in its merchant contracts, which prevents  customer diversion to cheaper networks.

American Express carries a Zacks Rank #3 (Hold).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


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JPMorgan Chase & Co. (JPM): Free Stock Analysis Report
 
Citigroup Inc. (C): Free Stock Analysis Report
 
American Express Company (AXP): Free Stock Analysis Report
 
Costco Wholesale Corporation (COST): Free Stock Analysis Report
 
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