A favorable court ruling, plans of buying back its own shares accompanied with a good dividend hike are all making American Express (NYSE: AXP) investors happy.
On Monday, a federal appeals court ruled out in favor of AmEx saying that it can stop businesses from pushing their clients toward competing credit cards.
Merchants normally pay a credit card transaction fee to the issuer’s bank, whenever a credit card user swipes a card at a terminal. The transaction fee of American Express’ credit card is higher compared to the fees of other banks.
For this reason, many merchants are luring customers to use cards issued by other banks. However, AmEx CEO refused to lower the fees, which led to a legal dispute.
The recent ruling overturned the ruling given by a lower court last year, which stated that since AmEx is charging higher fees, the merchants have the right to request the customers to use cards issued by other banks which charge lower merchant fees.
If the Federal Government does not appeal against this judgment, AmEx is bound to win the legal battle after six years, and its revenue growth is definitely going to see a great hike.
In addition, yesterday the company announced a dividend increase of 10% per share, boosting its quarterly dividend payout from $0.29 to $0.32. With Warren Buffet holding the largest stake in the company, AmEx is also planning a share buyback program for $150 million within the next financial year.
Investors cheered yesterday as the share price rose to $64.28, up 1.4%, and continued to rally throughout day as it lifted the stock by 28%, the best rise since February, when its stock price fell to $50.27.
Even after its previous dividend hike of 1.8%, without taking into account yesterday’s announcement, AmEx has always had more to offer. Its shares have performed well in the past, including fetching a record price of $95 in 2014.
Considering AmEx’s past performance, trade analysts are forecasting an increase of 11.4 times in revenue growth, provided its CEO keeps his promise of overhauling its credit card department.
AmEx is now planning to get the customers increase their credit balances along with luring them into buying some of its products. At the same time, the company is also concentrating on cost-cutting and is planning to reduce its expenses by $1 billion. By 2019, AmEx might be able to reach an agreement with MasterCard and Visa in an attempt to raise merchant acceptance rate. All of which are good news for investors.
Analysts are expecting a profit of $5.60 per share by 2017, which makes AmEx’s shares a great stock to invest in if you want to earn good dividend yields in the near future.