American Express (NYSE:AXP) has a lot of things going for it, and despite recent troubles, the financial giant has mounted a strong comeback. One reason why some investors like American Express is that its current dividend yield of 1.6% is actually quite a bit better than its largest peers in the electronic payment network industry. Yet when you take a broader view, you can find plenty of related companies that have better dividend yields with similar growth prospects. In particular, Discover Financial (NYSE:DFS), JPMorgan Chase (NYSE:JPM), and Costco Wholesale (NASDAQ:COST) have demonstrated advantages over AmEx in the dividend department.
Discover this credit card alternative
Discover Financial doesn't have as long of a history as American Express, but it was a pioneer in its own way. The company was one of the first to offer a cashback credit card on all purchases, helping to drive forward a trend that eventually led to nearly ubiquitous offerings of cash, airline miles, and other rewards from credit card companies. Over a history of more than 30 years, Discover is still smaller than most of its card rivals, but it has fleshed out a wider variety of financial offerings that include bank accounts and other types of loans. In addition, Discover has the same advantages and risks that American Express has in that both companies issue their own cards and are therefore exposed to the credit risk of their respective customers.
Discover Financial's current dividend yield of 2% isn't a whole lot higher than American Express, but its dividend growth has been more impressive. Over the past five years, Discover has tripled its payout to its current level of $0.30 per share. That compares to only a 60% rise in AmEx's payout. Moreover, Discover has a lower payout ratio than American Express, giving it slightly more latitude for payout increases in the future.
Going with a card issuer
Beyond the card network industry, many credit card issuers have better yields and growth prospects than American Express. JPMorgan Chase commands the Chase credit card network, and high-end Chase offerings like the Sapphire Reserve card go up against top American Express offerings like its Platinum card. Moreover, JPMorgan's consumer and investment banking operations have recovered dramatically since the financial crisis, and the stock has climbed to new highs as a result.
JPMorgan's dividend is currently 2.3%, but the bank has worked hard to restore its dividend payout since the financial crisis. Quarterly payments have doubled since 2011, and if the Federal Reserve approves future capital plans, then investors can expect further attempts from JPMorgan Chase to keep its dividend moving higher. Combined with a very strong position in its industry, JPMorgan offers both current income and growth prospects down the road.
Costco: making dividend investors feel special
Finally, Costco Wholesale is well-known to American Express investors. As the company that snubbed a long partnership with the card network provider, Costco was primarily responsible for the long swoon in AmEx stock, and only now has the card company been able to get itself out of a tailspin and demonstrate an ability to move forward strategically. Meanwhile, Costco has had great success with its successor card arrangement, and despite pressure from online retail, the warehouse big-box giant has been able to keep its devoted membership core and build profits from its business model.
From a dividend perspective, Costco's yield of 1.3% might make it seem like an unlikely candidate for this list. However, Costco has also supplemented its regular quarterly dividend with special payouts over time. The most recent payment of $7 per share added about four percentage points to Costco's effective yield, and although these special dividends don't happen every year, they happen often enough for long-term investors to incorporate into their expectations for dividend income over the long run.
American Express pays a dividend, but it isn't a particularly noteworthy one. These three alternatives offer many of the same growth opportunities while paying shareholders more money. If you're an income investor, knowing that there are alternatives to American Express will help you structure your portfolio to meet your individual needs.
Dan Caplinger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Costco Wholesale. The Motley Fool recommends American Express. The Motley Fool has a disclosure policy.