It looks like American Express Company (NYSE:AXP) is about to go ex-dividend in the next 4 days. Ex-dividend means that investors that purchase the stock on or after the 8th of October will not receive this dividend, which will be paid on the 10th of November.
American Express's next dividend payment will be US$0.43 per share, and in the last 12 months, the company paid a total of US$1.72 per share. Looking at the last 12 months of distributions, American Express has a trailing yield of approximately 1.7% on its current stock price of $101.61. If you buy this business for its dividend, you should have an idea of whether American Express's dividend is reliable and sustainable. As a result, readers should always check whether American Express has been able to grow its dividends, or if the dividend might be cut.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. That's why it's good to see American Express paying out a modest 35% of its earnings.
When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's not ideal to see American Express's earnings per share have been shrinking at 2.7% a year over the previous five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, American Express has increased its dividend at approximately 9.1% a year on average.
To Sum It Up
Should investors buy American Express for the upcoming dividend? Earnings per share have shrunk noticeably in recent years, although we like that the company has a low payout ratio. This could suggest a cut to the dividend may not be a major risk in the near future. It doesn't appear an outstanding opportunity, but could be worth a closer look.
However if you're still interested in American Express as a potential investment, you should definitely consider some of the risks involved with American Express. For example, we've found 3 warning signs for American Express (1 makes us a bit uncomfortable!) that deserve your attention before investing in the shares.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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