Title: Presently, Consider This Warren Buffett-Favored Dividend Growth Stock
Warren Buffet, the CEO of Berkshire Hathaway (BRK.A -0.09%, BRK.B -0.24%), is renowned for his investment strategy of identifying businesses with durable competitive advantages and long-term returns. Among Berkshire's picks, American Express (AXP 0.28%) boasts the second-largest position in its stock portfolio, clocking in at 15.3%. This financial services giant has consistently delivered solid returns, earning its spot through superb performance, flexibility, and commitment to shareholders.
In 2024, American Express witnessed an impressive surge of 62.7% in its share price. Despite this, the company remains an intriguing option for dividend growth investors. Here's why:
Unyielding Revenue Growth
American Express reported a noteworthy 8% increase in third-quarter 2024 revenue to $16.6 billion compared to the same period in 2023. Card member spending and quarterly revenue from card fees swelled by 6% and 18%, respectively. CEO Stephen J. Squeri attributes this success to customer retention and the company's success in alluring young consumers – millennials and Gen Z – who represent the fastest-growing consumer demographic in the US.
Powerful Earnings and Credit Quality
American Express's third-quarter 2024 earnings reached an impressive $2.51 billion, marking an uptick from $2.45 billion in the same period last year. Earnings per share soared to $3.49, propelling the company to raise its full-year 2024 guidance to a range of $13.75 to $14.05 per share, up from its initial range of $13.30 to $13.80.
The company's credit quality has remained robust with a net write-off rate of 1.9%, improving from 2.1% in the second quarter. Its revenue growth predictions for 2024 approach around 9%. This balance between growth and risk management reflects American Express's astute strategic approach.
Top-Notch Pricing Power
American Express's premium positioning pays off, with its average per-card fee amounting to $105 in the third quarter of 2024 – a 40% jump from $75 three years ago. Luring high-spending consumers with premium benefits fuels this pricing power, extending to its commercial segment serving high-value business clients. This diverse income stream funds continuous investment in card benefits and rewards programs.
Robust Dividend Returns and Valuation
American Express stocks currently yield a modest 0.92%. Though lower than the S&P 500's average yield of 1.22%, its conservative payout ratio of just 19.8% signifies ample space for future increases. The company has demonstrated its loyalty to dividend growth, raising payouts by a decent 10.7% annually over the previous 10 years. Its focus on shareholder returns through dividend growth and share repurchases underscores management's commitment to investors.
Attractive Discounted Valuation
American Express trades at just 20 times earnings, representing a substantial discount compared to the S&P 500's forward multiple of 24. Its proven business model, robust credit metrics, and premium positioning present investors with the chance to seize one of the financial sector's top-tier franchises at a reasonable price.
Investors seeking a blend of present value and future growth potential need look no further than American Express. Its impressive execution, pricing power, and strategic focus on premium clients suggest that this long-term winner still has untapped potential.
Following Warren Buffet's investment strategy, many investors might consider putting their money into companies with strong performance and commitment to shareholders. American Express, with its consistent earnings and impressive revenue growth, is an attractive option for dividend growth investors looking for robust returns.
The finance giant's earnings per share rose in the third quarter of 2024, leading to an increase in its full-year 2024 guidance. Additionally, its premium positioning allows for a high per-card fee, providing a valuable income stream for continuous investment in card benefits and rewards programs.
