Will American Express Raise Its Dividend in 2018?

Turn the clock back 50 years, and American Express (AXP -0.84%) was one of the innovators of the financial industry. By helping to make the charge card a status symbol for success, AmEx set the stage for the modern electronic payments systems that billions of people across the globe rely on for everyday commerce.

Along the way, the card pioneer has also been good to its shareholders, both in producing long-term growth and by paying reliable dividends. Yet with ongoing fallout following the loss of its relationship with big-box warehouse retailer Costco Wholesale (COST -0.12%), some feared that the company's dividend might be in trouble. That hasn't been the case so far, and investors want to know whether they can expect even larger payments in the coming year.

Dividend stats on American Express

Data source: Yahoo! Finance. Last increase refers to ex-dividend date.

A recent history of fast-growing dividends

Despite having paid dividends for decades, only during the 2010s has American Express been particularly interested in fostering consistent dividend growth. Prior to that, the company seemed to be more concerned about maintaining stability with its dividends. With the exception of a minor reduction in the mid-1990s, American Express has been good about keeping its dividends constant while occasionally going through spurts of growing payouts. Those favorable periods have corresponded with times of economic strength, such as the mid-1980s and the housing boom era of the mid-2000s.

AXP Dividend data by YCharts.

Perhaps most noteworthy in American Express' dividend history was the fact that it never had to cut its dividend during the financial crisis of the late 2000s. That stands in stark contrast to nearly every other major financial institution, some of which failed entirely and others had to endure massive dividend cuts that punished shareholders harshly. To be clear, AmEx suffered big share-price declines like its peers in the industry during that period, yet its ability to leave its capital allocation decisions unaffected stands out at a time when most companies were scrambling for cash.

Thereafter, American Express started another period of substantial growth. For six years now, it has made respectable boosts to its dividend, and the result has been a near-doubling in its quarterly payment to shareholders. Even though AmEx's earnings took a hit in the aftermath of the Costco partnership's termination, the company chose to make a dividend increase in late 2016 and followed that up recently with its latest 9% boost to its payout.

Image source: American Express.

What's ahead for American Express' dividend in 2018?

With a payout ratio that's still below 30%, American Express has the financial capacity to consider dividend increases even in periods during which its earnings growth takes a pause. That's been helpful in recent years, but it now looks like it might not really be necessary going forward. AmEx has largely completed its two-year turnaround strategy ahead of schedule, and per-share earnings jumped 25% in its most recent quarter compared to year-ago levels. With bottom-line growth returning to the company and higher guidance for future earnings, American Express will have greater support for dividend increases in the years to come.

That's not to say that American Express won't have obstacles to overcome. A new CEO will find it hard to fill the shoes of outgoing executive Ken Chenault, who has led the card giant for 16 years. For the most part, however, the Costco episode is now behind AmEx, and new partnerships have emerged to take some of the sting out of that past loss of business. Now, American Express will have to navigate the next business cycle for credit quality whenever it comes, and higher rates could put pressure on some cardholders and lead to higher delinquencies and other credit-related losses.

Nevertheless, American Express has been dedicated to its dividend, and so it's likely that the company will again look to stay consistent with an increase in 2018. It seems to like a roughly 9% to 10% payout boost, and so an increase to $0.38 or $0.39 per share seems like it would best fit past history. Investors can't expect a high yield from American Express, but the growth it has produced has been beneficial to long-term shareholders.