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American Express (NYSE:AXP) had a decent history of raising its dividend on a fairly regular basis, but that history was interrupted by last decade's financial crisis. Earlier this summer, American Express indicated that it expects to increase its dividend by 10% for its third-quarter payment of 2016, raising its payout to $0.32 per share per quarter. It also increased its dividend in 2012, 2013, 2014, and 2015., but prior to 2012, you have to look back to its first payment of 2008 for a hike. 

With a history like that, American Express clearly tries to increase its dividend on a fairly regular basis. Still, for shareholders looking for dividend growth to keep pace with inflation, what really matters is whether it will be able to succeed in increasing that payment. While of course nobody knows what will happen until the company makes its decision, the three key factors discussed below provide some strong clues.

Is American Express retaining enough of its earnings to build its business?

Over time, a dividend can only increase as fast as the earnings power of the company that pays it. For a company to reliably increase its earnings power, it generally needs to invest in maintaining and improving its internal operations. For a multibillion-dollar company like American Express, a big portion of that investment comes from its retained earnings, the money it keeps from the profits it earns.

American Express currently pays out about 20% of its earnings in the form of its dividend, retaining around 80% of those earnings to build its business. That's a healthy retention rate, and one that certainly gives American Express room to continue to invest in its business to enable it to grow fast enough to potentially increase its dividend in 2017.

Is American Express expected to grow fast enough to increase its dividend?

Of course, all of those retained earnings can only translate into future dividend increases if the company can profitably invest that money to build its business. American Express earned $5.38 per share in 2015; it's expected to earn $5.50 per share in 2016 and $5.54 per share in 2017. That's not much in the way of immediate growth, but over the next five or so years, the company is expected to increase its earnings at nearly an 8% annualized pace. 

A key reason for American Express' slow near-term expected growth is the fact that it recently lost its contract as Costco's (NASDAQ:COST) exclusive credit card to arch-rival Visa (NYSE:V). While the generous rewards program and low interchange fees made the prior Costco deal expensive for American Express, Costco represented about 8% of American Express' business. The loss of that much business in one fell swoop is a substantial bite for American Express to overcome.

Still, with at least some growth expected in 2017 to go along with its low payout ratio, American Express could very well continue its streak of increasing its dividend without jeopardizing its longer-term future.

Does American Express have a solid enough financial foundation to increase its dividend?

American Express is in the business of lending money and facilitating payments, earning its keep from things like fees, interest rate spreads, and currency exchange rate spreads. Because of the nature of that industry, it relies on its balance sheet to operate smoothly. If that balance sheet gets over-stressed, American Express' dividend might be sacrificed in order to protect its ability to otherwise operate smoothly.

Fortunately, American Express' balance sheet looks reasonably solid. Its debt to equity ratio is about 2.6 to 1, which isn't an excessive debt burden for a company in the financial industry. In addition, its current ratio is nearly 2 to 1, which means it has sufficient cash and short-term assets available to cover the debts and other bills coming due over the next year.

As a result, American Express' balance sheet looks solid enough to support its operations and provide room for a dividend increase.

The net result for American Express: likely a higher dividend in 2017 than 2016

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Put together, American Express' balance sheet, payout ratio, and prospects for mid- to longer-term growth, the company stands a very good chance of being able to raise its dividend in 2017. Even if it doesn't find itself in the position to actively increase its dividend in 2017, thanks to the mid-year timing of its 2016 increase, it will very likely pay a higher total dividend per share in 2017 than in 2016.

After all, during last decade's financial crisis, American Express managed to hold its dividend steady even as several of its financial counterparts were forced to cut theirs. With that kind of willingness and ability to keep its dividend going during one of the toughest market conditions for financial stocks in a generation, it would take a tremendous set of problems to cause the company to actively cut its dividend.

All of that means there's a very strong likelihood of American Express' dividend being higher in 2017 than 2016, and a very good shot of an actual dividend increase along the way.

Chuck Saletta has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Costco Wholesale and Visa. The Motley Fool recommends American Express. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.