Economic uncertainty hasn't seemed to have weighed on American Express (AXP +0.71%). The company recently announced a 17% increase to its quarterly dividend, lifting the payout from $0.70 to $0.82 per share. The new dividend will be payable on May 9 to shareholders of record as of April 4.
This marks Amex's fourth consecutive annual dividend increase and its largest in over a decade. The consistent pattern of dividend growth reflects management's growing confidence in the company's long-term financial strength.
Investors should sit up and take notice. Combining its fresh dividend hike for investors with its overall solid business, there's a lot to like about American Express stock at its current valuation.
NYSE: AXP
Key Data Points
Strong 2024 performance
American Express reported record revenue of $65.9 billion in 2024, up 9% year over year (10% on a foreign exchange-adjusted basis). Net income rose to $10.1 billion, while earnings per share jumped 25% to $14.01. Some key highlights from card member spending data in the company's fourth quarter specifically were airline spending growing 13% year over year, and 19% year-over-year growth in spending on premium airline cabin seating. Travel and entertainment were "very, very strong in the quarter for us," explained Amex CEO Stephen Squeri during the company's earnings call.
What's also noteworthy is the company's momentum with younger customers when it comes to the fee-based cards Amex is known for. This is a big tailwind for the company.
Squeri explained during the call:
[I]n the U.S., fee-based consumer premium cards are the fastest-growing part of the industry, and we have about 25% of those cards, indicating a continued upside opportunity. Across the industry, the number of millennials and Gen Z consumers with premium products are growing at an even faster rate, and we're adding highly creditworthy customers in these cohorts faster than the industry, with substantial room to continue this growth.
It's clear that our premium products are resonating well with these age groups whose spending needs will continue to expand as they move forward in their lives and careers, with many likely to also start new small businesses in the coming years.
In addition to strong card member engagement, Amex maintained healthy credit performance. Delinquency and write-off rates remained low by historical standards, helping support bottom-line strength and profitability.
An upbeat outlook
Looking ahead, American Express expects revenue to grow by 8% to 10% in 2025, with projected earnings per share between $15 and $15.50 (up from $13.35 in 2024 and $11.21 in 2023).
In another testament to management's confidence in its business, American Express spent $5.9 billion repurchasing its shares in 2024. As management pointed out in its fourth-quarter call, the company has reduced its total share count by 17% since the beginning of 2019. This shows how the company's strong free cash flow generation gives it the flexibility to both reinvest in growth and return significant capital to shareholders. Further, significant repurchases recently indicate that management may believe its stock is undervalued.
Risks still exist. A downturn in consumer spending, rising delinquencies, or tighter regulations could pressure future performance. But Amex's strong brand and focus on affluent, creditworthy customers give it a defensive edge in a volatile environment. Further, the stock's valuation of about 19 times earnings arguably does a good job of pricing in some of these risks.
Ultimately, Amex's strong double-digit dividend hike signals more than just financial strength -- it signals long-term confidence. For investors looking for a mix of growth, stability, and income, American Express looks like a company worth considering investing in. Sure, shares aren't cheap. But high-quality companies like Amex rarely trade at a steep discount to a reasonable estimate of fair value.
