Dividend stocks outperform non-dividend-paying stocks over the long run. It happens in good markets and bad, and the benefit of dividends can be quite striking: Dividend payments have made up about 40% of the market’s average annual return from 1936 to the present day. But few of us can invest in every single dividend-paying stock on the market, and even if we could, we might find better gains by being selective. That’s why we’ll be pitting two of the Dow Jones Industrial Average‘s dividend payers against each other today to find out which is the true dividend champion. Let’s take a closer look at our two contenders now.
Alcoa Inc (NYSE:AA) has been a member of the Dow since 1959 and is the only remaining metals company on an index that once tilted heavily toward extractive industries. Based in Pittsburgh, home of the Steelers, aluminum-focused Alcoa Inc (NYSE:AA) has survived the globalization of the metals industry better than many of its old neighbors. Today, it’s the third-largest aluminum-producer in the world with more than 3.5 million metric tons of annual production capacity.
American Express Company (NYSE:AXP) is a 31-year veteran of the Dow, and it was the first financial-services component in the index’s history. Founded in 1850, American Express Company (NYSE:AXP) has become the world’s prestige credit card, issuing far fewer cards than the leading two processors but charging much higher per-user rates. American Express Company (NYSE:AXP) serves as a lender as well as a processor, which enables greater profit streams in good times but can also run the risk of deep losses during financial crises.
Both of these companies can be buffeted by economic headwinds, but has this put either dividend payment at risk? We’ll soon find out.
| Statistic | Alcoa | American Express |
|---|---|---|
| Market cap | $9.2 billion | $80.6 billion |
| P/E ratio | 37.7 | 18.3 |
| Trailing-12-month profit margin | 1.1% | 14.1% |
| TTM free-cash-flow margin* | 1.9% | 16.1% |
| Five-year total return | (78%) | 72% |
Source: Morningstar; YCharts.
*Free-cash-flow margin is free cash flow divided by revenue for the trailing 12 months.
It may not be much of a contest here. Can Alcoa Inc (NYSE:AA) fend off the cash-rich American Express Company (NYSE:AXP), or will investors decide that it’s better to get charged up with the credit card processor?
Round one: endurance
According to Dividata, Alcoa Inc (NYSE:AA) has been paying dividends for more than 50 years. You might expect American Express Company (NYSE:AXP) to match this streak of consistency, but that’s not the case: American Express Company (NYSE:AXP) began paying dividends in 1977, only five years before it joined the Dow. The miner pulls out a major win to take an early lead.
