Credit card specialist American Express (AXP 1.39%) just raised its quarterly dividend by 16% to $0.95 per share, highlighting its appeal as a dividend stock. With this dividend increase, the stock now has a dividend yield of 1.2% -- not bad for a company with strong earnings momentum and potential for robust dividend growth for years to come.
And this increase comes at a time when the stock is under pressure. Shares are down about 17% year to date.
With the stock falling even as its dividend is hiked by a double-digit rate and the underlying business continues to grow at an impressive clip, is this a good time to buy American Express shares?
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Strong business momentum
The foundation of any great dividend stock is a growing underlying business. And American Express delivered exactly that in 2025. Its fourth-quarter revenue, net of interest expense, rose 10% year over year to $19.0 billion.
Further, this top-line momentum flowed powerfully to the bottom line. While revenue, net of interest expense, climbed 10% year over year during the quarter, American Express's earnings per share (EPS) jumped 16% to $3.53, demonstrating the company's strong operating leverage.
Full-year results were impressive, too. American Express's 2025 revenue, net of interest expense, rose 10% year over year to about $72 billion, while its earnings per share for the period rose 15% when adjusted for one-time items that affect the comparison.
And this momentum is poised to continue.
Management's 2026 earnings per share guidance of $17.30 to $17.90 implies about 14.4% year-over-year growth at the midpoint -- a robust earnings outlook that gives the company plenty of capacity to cover its new annualized payout of $3.80 per share.
In fact, the expected dividend payments translate to a payout ratio (dividends paid as a percentage of earnings) of just 21.6% based on the midpoint of the company's 2026 earnings guidance. A payout ratio this low leaves meaningful room for more robust dividend hikes in the years ahead.
But you can't talk about American Express's dividend without noting that the company is returning capital to shareholders even more aggressively through another channel: share repurchases. During 2025, the company returned $7.6 billion in capital to shareholders -- $2.3 billion in dividends and $5.3 billion in share repurchases.
Showing just how aggressive the company's stock buyback program is, management explained on the company's earnings call that it has reduced its share count by 7% since 2022.
American Express stock: buy, sell, or hold?
Of course, investors must consider the price tag. American Express trades at a price-to-earnings multiple of about 20 at the time of this writing.
At this price, shares certainly aren't a bargain. This valuation arguably prices in continued double-digit earnings growth. Additionally, this valuation represents a slight premium to the company's five-year average price-to-earnings ratio of about 18, but I believe its higher multiple these days is justified given the company's consistent double-digit earnings-per-share growth.
A key risk, of course, is that consumer spending cools or broader economic headwinds push credit delinquency rates above historical norms.
NYSE: AXP
Key Data Points
Ultimately, however, I like the stock at this valuation. The company's affluent customer base arguably provides a structural advantage, as high-income consumers tend to be more resilient during economic downturns, helping insulate the business from sudden shocks to the spending environment. And the underlying business is clearly doing well.
The combination of a 16% dividend increase, a low payout ratio, double-digit earnings growth, and an aggressive share-repurchase program makes the stock an attractive option for investors seeking access to a steadily growing income stream.
