American Express Company (NYSE:AXP) is about to trade ex-dividend in the next 4 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. This means that investors who purchase American Express' shares on or after the 6th of January will not receive the dividend, which will be paid on the 10th of February.
The company's next dividend payment will be US$0.43 per share, on the back of last year when the company paid a total of US$1.72 to shareholders. Based on the last year's worth of payments, American Express has a trailing yield of 1.1% on the current stock price of $163.6. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether American Express can afford its dividend, and if the dividend could grow.
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. American Express has a low and conservative payout ratio of just 18% of its income after tax.
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.
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