American Express Co. (NYSE: AXP) is an important financial stock to the markets, only a part of which is because it is a Dow Jones Industrial Average component. The company is a barometer for what is happening with spending above the margin at the higher end of the consumer market. Now American Express has decided to give shareholders a reward via a dividend hike.

Unfortunately, our take is that this dividend yield is far too low to lure new buyers solely for that dividend.

The credit card issuer announced late on Tuesday that the company’s board of directors has approved a 13 percent dividend hike. The old payout of $0.23, will be raised by $0.03 per share to $0.26 per share per quarter.

Any time you see a 13% hike to a payout from an established company, it is generally a signal from the company itself that it is comfortable with estimates enough that it can maintain that payout for years. So why is this dividend hike not enough?

Where AmEx’s dividend is a problem is that the share price has appreciated to the point that the existing yield is only 1.03% based upon an $89.22 stock price. Now the new yield is 1.16%.

How many new buyers are going to say that a 1.16% yield from a DJIA component is the right catalyst to enter stock that is up 30% from its 52-week low and $5 shy of an all-time high? It doesn’t matter that Warren Buffett will get to praise the move, because he owns it at far lower prices.

So, if you annualize this dividend to $1.04 per share per year, consider that the earnings per share estimate is $5.44 per share for 2014 and $5.99 per share for 2015. The long and short of the matter is that AmEx is only paying out 19% of its (expected) adjusted income for this year.

It does not seem right that AmEx will be needing massive cash for acquisitions, nor that it has been handed down a government mandate to build up its reserves. Sadly, we would like to see AmEx double its dividend, or at least commit to doubling that payout ahead.

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