Does American Express Stock Represent Undervalued Opportunity?

Back in 2000, the firm’s quarterly payout amounted to just 8 cents per share. By 2008 the firm did manage to increase the rate of those payments to 18 cents per share. However, at this stage, due to the enormous challenges brought by the great recession, the company left those dividends unchanged until 2012. From this point, the management did resume its progressive dividend policy. By 2019, the quarterly payouts have reached 43 cents per share.

Here it is worth noting that despite the recent economic downturn, caused by the outbreak of COVID-19 pandemic and by subsequent travel restrictions and lockdowns, American Express management has avoided any dividend cuts and managed to maintain those payments to previous levels.

In fact, the board might even consider a moderate dividend hike, considering the fact that already 4 quarters passed by the last increase. This decision obviously will be heavily dependent on the future financial performance of the firm.

At current market prices, the current dividend yield of the stock is just above 1.8% level. This might not be very attractive for many income investors. In fact, in many countries, investors can earn similar returns on Certificates of Deposit (CDs). Here, unlike with stocks, they would not be risking the principal of their investments. Therefore at current prices, the dividend yield of American Express stock is not very appealing.

On the bright side, the payout ratio of the company is close to 21%. This suggests that the company has a quite wide margin of safety when it comes to distributing payouts to shareholders. Therefore the dividend payments of American Express Corporation are safe, at least for the foreseeable future.

At the same time, it is worth mentioning that there is always a potential for future dividend hikes, yet this is very much subject to the future financial performance of the company.


What does Latest Financial Reports Tell us about American Express

Speaking of financial results, the first quarter earnings report of the firm did show some problems the company faced since the outbreak of the COVID-19 pandemic. Firstly the total non-interest revenue stood at $7,980 million, which was approximately 4% lower than during the first 3 months of 2019 when this number was at $8,305.

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