If you grew up in the 1970s and 80s like I did, one of the things you most likely remember about American Express Company (NYSE:AXP) is the phrase “Don’t leave home without it.” Delivered from a seemingly endless stream of television commercials and print ads, the clever corporate tag line positively embedded itself in the psyche.
If American Express Company (NYSE:AXP)’s presence in American culture isn’t quite what it used to be, it’s not because the company isn’t still highly successful. It definitely is. And its enough of a good investment that one of the country’s most-successful investors is also one of its biggest fans. Thinking about investing in AmEx yourself? Here are seven things you need to know:
1. AmEx is bigger than you think
With almost $157 billion in assets as of March 31, 2013, American Express Company (NYSE:AXP) is the country’s 19th largest bank holding company, putting it ahead of Deutsche Bank AG (USA) (NYSE:DB), the German banking giant’s American operation. Size doesn’t mean anything in and of itself, but used skillfully, size can help generate revenue and profit far beyond that of a smaller rival.
2. Great share-price performance
Over the past year, American Express Company (NYSE:AXP) has returned gains of 33.08% to its shareholders: impressive by any normal standard, which these times aren’t. For the same period, Bank of America Corp (NYSE:BAC) shares gained 77.96%. Even Citigroup Inc. (NYSE:C) is up by 86.97% in the past year. But even given all that, a return of 33.08% is nothing to look down on.
For the first quarter of 2013, total revenue for American Express Company (NYSE:AXP) was up 4% year over year: this at a time when revenue for some big banks is flat or declining. For the same period, total revenue at JPMorgan Chase & Co. (NYSE:JPM) and Wells Fargo & Co (NYSE:WFC) was down 3.87% and 1.41%, respectively. Profit is all well and good, but if it isn’t born out of ongoing revenue growth, then it’s not sustainable.
4. Killer return-on-equity
Return-on-equity, or ROE, is a measure of management effectiveness, and gives you some notion of how much profit a company generates with shareholder money. American Express Company (NYSE:AXP)’s ROE is a staggering 22.99% trailing 12 months. Even the extraordinarily well-run JPMorgan has an ROE of only 11.55%.
5. Amex pays a dividend
Wells Fargo pays a quarterly dividend of 3%, and JPMorgan pays 2.8%. At 1.2%, American Express Company (NYSE:AXP)’s dividend yield isn’t much, but it’s something — icing on the cake for what I consider to be more of a great growth stock.
6. Cardmember spending grew
As you might expect, cardmember spending is AmEx’s bread and butter, and the good news is that it was up by 6% for the first quarter of 2013. It rose even higher if you take foreign currency translations into account: 7%.
7. Buffett really likes Amex
Warren Buffett likes his bank-holding companies. Wells Fargo is Berkshire Hathaway Inc. (NYSE:BRK.A)‘s largest holding, and only three spots behind Wells is American Express Company (NYSE:AXP). With more than $151 million shares worth more than $11 billion, Buffett’s Berkshire holds a 13.8% stake in the charge-card giant.
