American Express Company
) recently came up with a couple of announcements that we expect
will attract investors' attention. The first announcement was that
of a hike in the company's dividend while the second pertained to
expansion of its merchant network. The two developments are not
related but are expected to benefit the company going forward.
In its first announcement, American Express increased its quarterly
cash dividend by 13%. The raised dividend now stands at 26 cents
per share against 23 cents paid on Feb 10, 2014. The revised
dividend will be paid on Aug 8, to shareholders of record as of Jul
Prior to this, American Express had announced a 15% hike in its
quarterly cash dividend in Apr 2013. The company has consistently
been paying dividends, which have grown at a 3-year CAGR of 13%.
This reflects the company's financial strength. American Express
will have to dish out $277.4 million every quarter for its dividend
payment, based on the outstanding share count of 1.07 billion as of
Mar 31, 2014. The company has ample liquidity for the payment, with
cash and investments of $21 billion as of Mar 31, 2014.
Merchant Network Expansion
In consistence with its commitment to enhance the U.S. small
merchant experience, American Express has expanded its merchant
acquiring program, OptBlue. The expansion has added four
participants, namely First Data, EVO, Merchant e-Solutions and
First American Payments Systems, which brings the total number of
OptBlue participants to 10.
OptBlue provides a convenient solution for the U.S. small merchants
whereby they can enjoy the benefits of American Express Card
acceptance. Participants under this program will be able to avoid
hassles related to payment processing that small merchants face in
the country. This will be possible through provision of benefits
like single statement, one settlement process and one contact for
all the major card brands. This in turn will broaden the U.S. small
merchant coverage for American Express.
First, with the dividends increasing at a CAGR of 13%, the
company's capital deployment strategies seem prudent. The company
performed well in the annual stress test of the Federal Reserve and
this primarily gave it the flexibility to announce the dividend
hike. Additionally, the company is intent on increasing its share
repurchases up to $4.4 billion in 2014 and by an additional $1
billion in the first quarter of 2015. We believe these capital
management activities justify American Express' commitment to
return more value to its shareholders. Going forward, continued
efforts like these are expected to not only help the company retain
the confidence of its existing shareholders but also attract more
Coming to the merchant network expansion, American Express has been
acquiring merchants through a number of channels like a proprietary
sales force and inbound channel, External Sales Agents, OptBlue
program and so on. OptBlue is specifically designed to cater to
those U.S. small merchants who have an American Express charge
volume of less than $1 million annually. OptBlue provides these
merchants the opportunity to connect with high-spending, loyal card
With small merchants comprising a significant percentage of the
total sales in the U.S. and with the increase in the number of
small merchants in the country over the last three decades, this
expansion provides immense growth potential to American Express.
Endeavors like these will help the company to gain a greater share
of the everyday transactions that are being made and hence, bode
well for medium and long-term growth.
American Express carries a Zacks Rank #3 (Hold). Investors
interested in the financial services space may consider
better-ranked stocks like
Euronet Worldwide Inc.
Ladder Capital Corp
). All of these have a Zacks Rank #1 (Strong Buy).
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