Shares of American Express Company AXP have gained 0.6% on Mar 10 following its announcement of approving a hike of around 20% in the quarterly dividend.

With this announcement, the payout now stands at 52 cents per share compared with the previous payout of 43 cents.

The increased dividend will be paid on May 10, 2022, to shareholders of record as of Apr 8. Based on the stock’s Mar 10 closing price of $169.60, the new dividend will yield 1% to American Express.

Prior to the latest hike, AXP had raised its quarterly dividend by 10.3% to 43 cents per share in 2019. Though American Express did not hike dividends in 2020 and 2021, it has been a regular dividend-paying company for more than three decades, which is commendable.

Apart from uninterrupted dividend payments, AXP has been resorting to continuous share buybacks as part of the company’s authorization back in September 2019 to buy back up to 120 million shares. 2021 marked yet another year of robust capital deployment moves by American Express.

AXP rewarded shareholders to the tune of $9 billion last year via share buybacks of $7.6 billion and common stock dividends worth $1.4 billion. American Express had around 56 million common shares left under its buyback program as of Dec 31, 2021. Continued share buybacks are expected to provide a boost to AXP’s bottom line. All these initiatives make the stock attractive to yield-seeking investors.

If a company pursues unhindered share buybacks and dividend payments despite a volatile environment, the scenario is indicative of the company’s sound liquidity position. The same has been the case with American Express, which is backed with a solid cash balance and robust cash generation abilities. This is important for not only relieving a company of debt-laden balance sheet risks and associated escalating interest expenses but also paves the way for accelerated capital deployment.

AXP exited the fourth quarter of 2021 with a sturdy cash balance of $22 billion. American Express generated cash flow from operations worth $14.6 billion in 2021, which increased to nearly three-fold from the 2020 figure. Riding on a solid liquidity position, AXP continued to witness a decline of 8.7% in debt balance from the 2020-end level as of Dec 31, 2021.

Return on equity, a profitability measure to identify how tactically a company is utilizing its shareholders’ funds, stands at 33.2% for American Express. The figure remains higher than the industry’s average of 23%.

Shares of American Express have gained 14.2% in a year against the industry’s decline of 2.5%. AXP currently 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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Similar to American Express, other companies in the finance space like Virtu Financial, Inc. VIRT, Principal Financial Group, Inc. PFG and Synchrony Financial SYF resorted to tactical capital deployment moves throughout 2021.

Virtu Financial distributed quarterly cash dividends of 24 cents per share during 2021. VIRT bought back 14.7 million shares worth $405.2 million under the share repurchase program last year. As of Dec 31, 2021, Virtu Financial had $737.2 million left under its share buyback authorization for future purchases of shares of Class A Common Stock and Virtu Financial Units.

Principal Financial bought back shares worth $921 million and dividends of $654.1 million in 2021. PFG boasts of 14 straight years of dividend increases. Principal Financial anticipates returning $2.5-$3 billion of capital to shareholders in 2022, consisting of $2-$2.3 billion in share repurchases and a 40% dividend payout ratio.

Synchrony Financial returned $3.4 billion in capital to shareholders in 2021, which comprised $2.9 billion of share repurchases and $500 million of cash dividends. SYF had $1.2 billion left under its authorized share repurchase program as of Dec 31, 2021. The dividend yield of Synchrony Financial stands at 2.5%, which is higher than the industry’s average of 2.1%.

Virtu Financial stock has gained 16.9% in a year. Meanwhile, shares of Principal Financial and Synchrony Financial have lost 9.3% and 23.7%, respectively, in the same time frame.

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American Express Company (AXP) : Free Stock Analysis Report

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