We recently compiled a list of the Warren Buffett Dividend Stocks by Sectors and Industries. In this article, we are going to take a look at where American Express Company (NYSE:AXP) stands against the other Warren Buffet-approved dividend stocks.
Warren Buffett is a well-known figure in the investment community, and his reputation requires no introduction. He is one of those rare investors whose strategies are closely emulated by countless newcomers to the field. This widespread admiration stems from the fact that Buffett operates in a class of his own. He remains committed to the investment principles he has relied on throughout his career, particularly value investing. The Oracle of Omaha’s lack of enthusiasm for the current AI trend highlights his steadfast dedication to the strategies that have guided his investment approach for decades.
At the Berkshire annual shareholder meeting in May, Buffett was asked about AI’s potential impact on traditional industries. He responded by acknowledging that he was not knowledgeable about the technology but emphasized that this lack of understanding did not imply he dismissed its existence, importance, or significance in any way. That said, Buffett is also enthusiastic about several other strategies beyond value investing.
Also read: Warren Buffett Disciple Guy Spier’s 10 High Conviction Stock Picks
Dividend stocks have been a staple in Berkshire’s portfolio for a long time, with nearly 93% of the holdings focused on them. The media has often highlighted Buffett’s affinity for dividend stocks, particularly because Berkshire Hathaway, his own company, does not pay a dividend. His approach has proven successful, as the investment portfolio managed by Buffett and his team is projected to generate around $6 billion in annual dividend income. Remarkably, $4.36 billion of that income from common and preferred stock dividends comes from just five companies.
Buffett’s approach to dividend investing isn’t driven by chasing the highest yield. Instead, he prioritizes identifying outstanding companies that can maintain and grow their dividends over the long term. He prefers a moderate yield from a stable, successful company over a higher yield from a less reliable and weaker one. If Warren Buffett has a preference for dividends, it’s clear he’s on the right track, given how significantly these stocks have contributed to overall market returns. His love for dividend stocks reflects the significant role these equities have played in contributing to the market’s overall returns over the years. Between 1993 and the end of 2022, the S&P 500 grew by 777%. However, when dividends were factored in, the S&P 500 saw an increase of over 1,400% during the same period. This indicates that dividends accounted for more than 20% of the market’s total return during those years.
Buffett carefully monitors the sectors and industries he invests in, which is a core aspect of his investment strategy. By the end of Q2 2024, the finance sector was the largest portion of his portfolio, followed closely by technology, with substantial investments also in basic materials and consumer goods. This article will explore some of the best Warren Buffett dividend stock selections across these different sectors and industries.
Our Methodology:
For this article, we analyzed Berkshire Hathaway’s 13F portfolio as of the second quarter of 2024 and picked dividend stocks from the portfolio. We mentioned the sectors and industries these stocks belong to and ranked them in ascending order of the hedge fund’s stake in them during Q2 2024.
We also measured hedge fund sentiment around each stock according to Insider Monkey’s database of 912 funds as of Q2 2024. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A close-up view of a payment terminal, capturing the sophistication of a payment network.
American Express Company (NYSE:AXP)
Berkshire Hathaway’s Stake Value: $35,105,457,585
Sector: Financials
Industry: Credit Services
American Express Company (NYSE:AXP) is an American multinational bank holding and financial services company. The stock is up by nearly 31% since the start of 2024 despite investors’ concerns about slowing consumer spending and the increasing rates of charge-offs and delinquencies in the banking sector. The company gains from significant network effects. Since the end of 2021, it has substantially expanded its operations, boosting revenues by nearly 50 percent and increasing Card Member spending by almost 40 percent. Additionally, it has issued approximately 23 million new cards and expanded to over 30 million merchant locations. In the second quarter of 2024, the company reported revenue of $16.3 billion, up 8.50% from the same period last year. The growth was mainly driven by higher net interest income, increased Card Member spending, and continued strong growth in card fees.
Artisan Partners highlighted the company’s strong business momentum in its Q1 2024 investor letter. Here is what the firm has to say about American Express Company (NYSE:AXP):
“American Express Company (NYSE:AXP) shares rose 22% this quarter. This is an interesting case study given our earlier discussion about inflation. American Express operates one of the largest credit card networks in the world. Its revenue is largely a function of a fee rate applied to the dollar value of goods and services that are transacted through its network. That dollar value is, of course, nominal. As inflation pushes up the value of those goods and services as it has for the past few years, American Express will capture that value through its fee structure. The past few years inflation has clearly been a benefit. Aside from its inherent inflation protection, the business is a very strong one. Payments continue to shift toward electronic forms, benefiting American Express. It also has a strong brand that attracts loyal and highly profitable customers that are the envy of the industry. Recent results have been strong with revenues moving nicely ahead of GDP.”
Buffett began investing in American Express Company (NYSE:AXP) in 1991 by purchasing preferred stock, which he later converted to common stock in 1994. The hedge fund did not change its position in the company during the second quarter of 2024 and owned nearly 152 million AXP shares, worth over $35 billion. The company made up 12.53% of Warren Buffett’s portfolio.
American Express Company (NYSE:AXP), one of the best Warren Buffett dividend stocks, raised its payouts twice this year. Currently, it offers a quarterly dividend of $0.70 per share and has a dividend yield of 1.14%, as of August 21.
The number of hedge funds tracked by Insider Monkey owning stakes in American Express Company (NYSE:AXP) grew to 68 in Q2 2024, from 66 a quarter earlier. The collective value of these stakes is over $38.4 billion. Fisher Asset Management was one of the company’s leading stakeholders in Q2.
Overall AXP ranks 3rd on our list of the best dividend stocks to buy according to Warren Buffett. While we acknowledge the potential of AXP as an investment, our conviction lies in the belief that some deeply undervalued dividend stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued dividend stock that is more promising than AXP but that trades at less than 7 times its earnings and yields nearly 10%, check out our report about the dirt cheap dividend stock.
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Disclosure: None. This article is originally published at Insider Monkey.