Alcoa Inc (AA) vs. American Express Company (AXP): Which Dow (.DJI) Stock’s Dividend Dominates?

Round two: stability

Paying dividends is well and good, but how long have our two companies been increasing their dividends? The same dividend payout year after year can quickly fall behind a rising market, and there’s no better sign of a company’s financial stability than a rising payout in a weak market (so long as it’s sustainable, of course). Unfortunately, Alcoa Inc (NYSE:AA) slashed its dividend coming out of the financial crisis and has yet to raise it again. AmEx, on the other hand, just raised its payout last year, and although it hasn’t been increasing payouts every year, it hasn’t reduced them since 1977, either.

Round three: power
It’s not that hard to commit to paying back shareholders, but are these payments enticing or merely token? Let’s take a look at how both companies have maintained their dividend yields over time as their businesses and share prices have changed:

AA Dividend Yield data by YCharts.

This is too close to call. Alcoa Inc (NYSE:AA)’s in the lead now, but AmEx was ahead for much of the post-recession period. Let’s call this one a…

Round four: strength
A stock’s yield can stay high without much effort if its share price doesn’t budge, so let’s take a look at the growth in payouts over the past five years. If you bought in several years ago and the company has grown its payout substantially, your real yield is likely much better than what’s shown above.

AA Dividend data by YCharts.

Round five: flexibility
A company needs to manage its cash wisely to ensure that there’s enough available for tough times. Paying out too much of free cash flow in dividends could be a warning sign that the dividend is at risk, particularly if business weakens. This next metric analyzes just how much of their free cash flows our two companies have paid out in dividends over the past four quarters:

AA Cash Div. Payout Ratio TTM data by YCharts.

It wasn’t really close this time. Despite coming in a bit late to the game, AmEx bests Alcoa where it counts to take the dividend crown. Alcoa appears to be in some ways a relic of an earlier time, when America defined itself by the output of its foundries and the size of its factories. AmEx, on the other hand, points the way toward a post-cash future — which, unfortunately for Alcoa, looks a lot more plastic than metal. Will this be the case over the long haul? It’s hard to say, but right now Alcoa finds itself in a deep hole to climb out of.

The article Alcoa vs. American Express: Which Dow Stock’s Dividend Dominates? originally appeared on Fool.com.

Fool contributor Alex Planes has no position in any stocks mentioned. The Motley Fool recommends American Express.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.