We recently published a list of 12 Best Safe Dividend Stocks for 2025. In this article, we are going to take a look at where American Express Company (NYSE:AXP) stands against other best safe dividend stocks for 2025.
The year 2024 was exceptional for US stocks, with the broader market climbing over 23% and the tech-focused NASDAQ gaining 29%. These impressive results were driven by the “Magnificent 7” group of stocks, which rose nearly 67%, alongside several other large-cap stocks. It marked the second consecutive year of over 20% gains for the broader market, a feat not seen since the late 1990s. Analysts and investors are optimistic about the market’s future, as 2024 demonstrated remarkable strength, suggesting the positive trend could continue. However, despite the current upbeat outlook, investor sentiment could shift quickly due to factors such as global tensions, economic developments, or unforeseen events.
No matter how the market trends, investors tend to gravitate towards safe stocks that offer stability, particularly during challenging times. Among these secure investment choices, dividend stocks are especially favored. These stocks are typically issued by companies with a reliable history of consistent dividend payments, often from well-established sectors such as utilities, consumer goods, or healthcare.
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Historical analysis consistently shows that dividend stocks tend to outperform other asset classes across various market cycles. A report by T. Rowe Price highlighted that since 1926, dividends have accounted for nearly one-third of the total equity returns for US stocks. From 1980 to 2019, a period marked by a significant decline in interest rates, dividends contributed to 75% of the returns from the broader market. The report further mentioned that dividends become especially valuable in a low-interest-rate environment, offering a steady cash flow when other fixed-income options are less attractive. Once companies start paying dividends, they rarely stop, and most increase their payouts over time. Paying dividends can make a stock more appealing to investors, potentially boosting its value. Over the last decade, dividends for the benchmark index have grown annually, with an average compound growth rate of just over 7%. In strong markets, dividends have enhanced total returns, while in years with low or negative returns, such as 2020 and 2022, dividends played a larger role in total returns, helping to bolster portfolio resilience.
Regarding the safety of dividend stocks, analysts recommend that investors prioritize dividend growth rather than chasing yield traps. Dan Lefkovitz, a strategist with Morningstar’s Index team, stressed the importance of focusing on dividend growth, highlighting that it is a distinct strategy from high-dividend investing. He explained that dividend growth reflects a company’s strong competitive position and positive future prospects. A dividend growth portfolio tends to align more closely with the overall market in terms of sector distribution and growth versus value characteristics, such as price-to-earnings ratios. While it has a value-oriented approach, it is more balanced and core-focused compared to a high-dividend portfolio.
Companies with a history of consistently raising their dividends have typically outperformed those that don’t pay dividends, all while experiencing less volatility. While dividends are not guaranteed and can fluctuate, especially in the current environment, they have played a substantial role in enhancing overall equity returns over the years.
Our Methodology
For this article, we scanned Insider Monkey’s database of 900 hedge funds as of Q3 2024 to find stocks with sustainable payout ratios popular among hedge funds. Our focus was on companies that consistently distribute dividends to their shareholders. From this initial selection, we narrowed down the list to include only those companies with a 5-year average payout ratio below 60%, indicating a robust cash position. Subsequently, we identified the top 10 companies meeting these criteria and arranged them in ascending order of the number of hedge funds that held stakes in each of them.
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)
Number of Hedge Fund Holders: 62
5-Year Average Payout Ratio: 24.01%
With a five-year average payout ratio of over 24%, American Express Company (NYSE:AXP) ranks tenth on our list of the best dividend stocks. The American bank holding company specializes in a wide range of related services and products. Its earnings came in strong in the third quarter of 2024. It reported revenue of $16.6 billion, up 8% from the same period last year. This marked the company’s 10th consecutive quarter of record revenue. In addition, it experienced a 6% rise in overall Card Member spending, with card fee revenue growing by 18%. It successfully added 3.3 million new premium Card Members, all while maintaining high retention rates, strong credit performance, and disciplined cost management. Reflecting on its robust performance and solid earnings from its core operations, the company increased its full-year EPS guidance to $13.75 – $14.05, up from the earlier estimate of $13.30 – $13.80. The projected full-year revenue growth remains consistent with the initial guidance, around 9%.
Analysts believe that American Express Company (NYSE:AXP) is a solid company due to its economic moat, which consists of enduring competitive advantages that have solidified its industry position and protected it from rivals. A key component of this moat is its brand, which is viewed as premium. This strong reputation attracts high-income customers who can afford to spend more than the average consumer. By targeting this demographic, the company can impose high annual fees on its premium credit cards. Despite these fees, the number of active cards has grown steadily, rising from 111.1 million in Q3 2014 to 145.5 million in the latest quarter. Moreover, the company has experienced a 13% year-over-year increase in average fees per card in Q3.
American Express Company (NYSE:AXP) was highlighted by GreensKeeper Asset Management in its Q3 2024 investor letter:
“American Express Company (NYSE:AXP) was our second-largest contributor this quarter, with a return of +17.1%. AXP continues to invest in its customers beyond traditional credit card rewards, recently enhancing its Global Dining Access to provide Platinum cardholders with exclusive reservations at premier restaurants worldwide. This focus on unique experiences has attracted a younger demographic, with millennials and Gen Z driving most of the customer acquisition and card spending growth in recent quarters. Exclusive events are more challenging to replicate than standard point reward systems, presenting a challenge for competing card issuers that lack AXP’s scale and concentrated base of affluent consumers. AXP has fine-tuned its offerings over decades to strengthen its network effect and shows no signs of slowing down.”
On December 13, 2024, American Express Company (NYSE:AXP) declared a quarterly dividend of $0.70 per share, which was in line with its previous dividend. The company has always remained committed to its shareholder obligation, paying $15 million to investors in dividends in the most recent quarter. The stock’s dividend yield on January 13 came in at 0.94%.
American Express Company (NYSE:AXP) was included in 62 hedge fund portfolios at the end of Q3 2024, compared with 68 in the previous quarter, according to Insider Monkey’s database. The collective value of these stakes is more than $45 billion. Warren Buffett’s Berkshire Hathaway was the company’s leading stakeholder in Q3.
Overall, AXP ranks 10th on our list of best safe dividend stocks for 2025. While we acknowledge the potential for AXP to grow, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than AXP but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.