Dividends are a great way to build sustainable income over the long term, especially if you buy dividend growth stocks. That way, even if the market is going through a major bout of volatility as it is in 2025, your portfolio will send you a steady (and growing) income quarter after quarter. This can be used to reinvest in more stocks, or as income for your personal expenses.
Stock market volatility is a great reminder that a portfolio dedicated to hypergrowth technology stocks that do not pay dividends can lead to huge ups and downs in the short run. In order to minimize this roller coaster -- if that is your goal -- you might want to add some dividend stocks to your portfolio.
Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue »
Here's why American Express(NYSE: AXP) is a magnificent dividend stock to buy and watch appreciate over the long term.
New card acquisitions
American Express was founded in 1850, making it 175 years old. Its current business model can be attributed to the launch of its credit card line in 1958. Since then, it has grown to become one of the largest credit card issuers in the United States and increasingly around the globe.
As of the end of the first quarter, American Express had an estimated 147.5 million total credit cards in circulation. In the quarter, it added 3.4 million net new credit cards to its network, the same figure by which it grew in Q1 2024. Adding new cards to the American Express ecosystem is an important forward-looking indicator of future earnings growth for the company. Many customers will stick with American Express for many years, leading to huge lifetime values for these credit card acquisitions.
Millennials and Gen Z customers are increasingly attracted to American Express' credit cards that offer perks for airline travel, hotels, and restaurants. These younger demographics accounted for 35% of spending on American Express last quarter, growing 14% year over year, and are the future of the American Express business.
Strong credit metrics to get through a downturn
With a push toward higher-spending customers with strong credit scores, American Express has much better write-off rates than other consumer lending companies. Its net write-off rate was 2.1% last quarter compared to 5% at competitor Discover Financial. Even if the economy goes through a downturn, American Express customers will be able to weather any storm much better than the average bank or consumer lender.
Plus, American Express' revenue is not only from credit card loans. Over half of its revenue comes from swipe fees when cards use the American Express network, with another 14% coming from annual fees charged to customers to use the cards in the first place. American Express is not a levered financial institution that will crater in a recession, which makes its earnings much more stable than other bank lending competition.
Why American Express is the ultimate dividend stock
Steady growth in new card acquisitions and spending on the American Express network has led to a 152% growth in earnings per share (EPS) for the company in the last 10 years. Along with this growth, American Express has grown its dividend per share by a cumulative 120% over that same time frame. Last quarter, it announced a 17% hike to the quarterly dividend. The current dividend yield is just 1.09%, but this should grow over every year based on the cost basis for anyone buying today.
Consistency is the name of the game for American Express, making it a fantastic dividend growth stock to own over the long term. What makes it even better is the large share buyback program the company has implemented, bringing shares outstanding down 30% in the last 10 years alone. A reduction in shares outstanding makes each existing shareholder that much larger of an owner of American Express, which is why Warren Buffett's Berkshire Hathaway now owns over 21% of the business without buying any new shares for years.
These share count reductions make it much easier to grow the dividend-per-share payout as well, seeing as you have fewer and fewer shares you are obligated to pay a dividend to every quarter. A combination of dividend growth and share repurchases can make investors richer over the long haul, which is why American Express is the ultimate dividend stock for investors to own right now.
Should you invest $1,000 in American Express right now?
Before you buy stock in American Express, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and American Express wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider whenNetflixmade this list on December 17, 2004... if you invested $1,000 at the time of our recommendation,you’d have $594,046!* Or when Nvidiamade this list on April 15, 2005... if you invested $1,000 at the time of our recommendation,you’d have $680,390!*
Now, it’s worth notingStock Advisor’s total average return is872% — a market-crushing outperformance compared to160%for the S&P 500. Don’t miss out on the latest top 10 list, available when you joinStock Advisor.
American Express is an advertising partner of Motley Fool Money. Discover Financial Services is an advertising partner of Motley Fool Money. Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool recommends Discover Financial Services. The Motley Fool has a disclosure policy.
