American Express Co. (NYSE: AXP | AXP Price Prediction) is rewarding its shareholders once again with a quarterly dividend of $0.70, payable on Monday, Feb. 10. That is in line with the prior payout. This Warren Buffett favorite posted phenomenal quarterly and 2024 results, and the ongoing dividend payment underscores the management’s commitment to delivering consistent value to investors.
Why Investors Like Dividends
Dividend stocks offer two benefits.
Investors favor dividend stocks for two main reasons. The first is that they offer enticing total return potential. Total return is a comprehensive measure of investment performance that includes interest, capital gains, dividends, and distributions realized over time. In other words, the total return on an investment or a portfolio consists of income and stock appreciation. It is one of the most effective ways to boost the prospects of overall investing success.
Dividend stocks can also provide investors with a steady, reliable stream of passive income. Passive income is money that is earned with little to no ongoing effort, usually from assets that generate cash flow. This income can come from a variety of sources, including stock dividends. Generating passive income is a desirable financial strategy for those seeking to diversify their income streams or achieve financial independence.
A Buffett Pick
Berkshire Hathaway is American Express’s largest shareholder.
American Express has been a part of the Berkshire Hathaway Inc. (NYSE: BRK-B) portfolio for 30 years and accounts for around 15% of the total. Berkshire Hathaway owns more than 151 million shares, or over 21% of the outstanding total, making Buffett’s firm a beneficial owner. That is worth more than $47 billion.
Buffett first bought American Express stock in 1994, attracted because it is a strong business with a loyal customer base. Demand for its products and services is always high.
American Express has not cut its dividend since 2000, when the payout fell from $0.225 per share to $0.08. Since that reset, the quarterly payout has increased 775%. The current dividend yield is about 0.9%, which is less than the industry and sector averages. For Berkshire Hathaway, that works out to an almost $106 million payout in the latest quarter.
American Express, the Company
This financial services giant reported stellar 2024 results.
American Express operates as an integrated payments company globally. Its products and services include:
- Credit card, charge card, banking, and other payment and financing products
- Network services
- Expense management products and services
- Travel and lifestyle services
It also provides merchant acquisition and processing, servicing and settlement, point-of-sale marketing, information products and services for merchants. And it provides fraud prevention services, as well as the design and operation of customer loyalty programs.
American Express sells its products and services to consumers, small businesses, midsized companies, and large corporations through mobile and online applications, affiliate marketing, customer referral programs, third-party service providers and business partners, direct mail, telephone, in-house sales teams, and direct response advertising.
Company headquarters are in Manhattan. American Express was founded in 1850 as a freight forwarding company. It issued its first charge card in 1958, and Amex first went public in May of 1977. Now, the company competes with or is similar to, among others:
- Capital One Financial Corp. (NYSE: COF)
- Discover Financial Services (NYSE: DFS)
- Mastercard Inc. (NYSE: MA)
- PayPal Holdings Inc. (NASDAQ: PYPL)
- Visa Inc. (NYSE: V)
The company reported record annual profits last year, boosted by stronger-than-expected holiday spending. More recently, the company paid $230 million to settle Justice Department charges over deceptive sales practices. In the past year, the company has targeted millennials and Gen Z customers as a key growth driver. It also has been expanding its global merchant network.
American Express, the Stock
The stock is trading near an all-time high.
The share price is almost 216% higher than five years ago, far outperforming the broader markets in that time. In the past year, the stock is up about 55%, and it recently hit an all-time high of $326.27 per share. The share price has overrun the mean price target of $315.78, indicating that analysts currently see no upside for the next 12 months. That could change with price target hikes. However, their consensus recommendation is to hold shares. Yet, Wells Fargo recently maintained its Overweight rating, and CNBC’s Jim Cramer called it a “phenomenal” stock.
American Express is one of billionaire Mario Gabelli’s top stock picks, and it is popular with hedge funds. Institutional investors hold more than 64% of the shares. Besides Berkshire Hathaway, others with notable stakes include BlackRock, State Street, and Vanguard. More than 8 million shares, or around 1% of the float, are held short. Note that CEO Stephen Squeri sold nearly $49 million worth of shares last fall.
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