21: American Express Company (NYSE:AXP)
Percent of Warren Buffett’s Portfolio: 7.2%
Dividend Yield: 1.8% Forward P/E Ratio: 11.5x (as of 5/16/16)
Sector: Financials Industry: Miscellaneous Services
Dividend Growth Streak: 4 years
American Express Company (NYSE:AXP) was founded in 1850 and is a financial services company best known for its credit card and travel-related services used by consumers and businesses. In 2015, over $1 trillion was billed on American Express cards.
American Express is one of Warren Buffett’s oldest and most successful stock picks. Buffett first invested in American Express in the mid-1960s, and the company remains one of his largest positions today.
True to his value investor roots, Buffett first purchased shares of American Express in the wake of the infamous salad oil scandal, which caused the company to incur major liabilities.
Fortunately for Buffett, he realized that the event did not impact American Express’ long-term earnings power or franchise value and snapped up 5% of the company’s shares at a bargain price.
Buffett’s fascination with the business likely starts with its powerful brand and status symbol. American Express is consistently rated as one of the most valuable brands in the world, and its cards are used in over 180 countries.
The typical American Express cardholder spends significantly more than cardholders of the company’s competitors. As a result, American Express has been able to command superior discount rates with merchants (merchants benefit from higher sales and more loyal customers when they work with AXP) and offer more attractive rewards to its cardholders (AXP reinvests its higher discount revenue from merchants).
This creates a bit of a network effect and helps American Express continue acquiring new cardholders characterized by high creditworthiness and above-average spending.
While the competitive environment has intensified and new cardholder growth has become more challenging to come by, Warren Buffett’s massive unrealized gains on his shares of American Express Company (NYSE:AXP) will likely keep him in the stock for a long time to come (his tax bill will be enormous once he sells).
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22: Bank of New York Mellon Corp (NYSE:BK)
Percent of Warren Buffett’s Portfolio: 0.6%
Dividend Yield: 1.7% Forward P/E Ratio: 12.7x (as of 5/16/16)
Sector: Financials Industry: Major Regional Banks
Dividend Growth Streak: 5 years
Bank of New York Mellon Corp (NYSE:BK) was established in 1784 and provides investment management, investment services, and wealth management that help institutions and individuals manage their financial assets. BNY Mellon has over $28 trillion assets under custody and/or administration and operates in more than 100 markets.
The company’s investment management business offers a range of investment strategies (e.g. equities, fixed income, alternatives), investment vehicles (e.g. mutual funds, separate accounts), and wealth management services (e.g. estate planning, private banking).
BNY Mellon’s investment services include execution and processing of trades, servicing investments (e.g. outsource middle office functions, safekeep assets), and capital and liquidity services (e.g. optimize funding and operating capital, access global markets).
Warren Buffett’s Berkshire Hathaway bought its first shares of Bank of New York Mellon during the third quarter of 2010.
One of the reasons why Warren Buffett might have been attracted to BNY Mellon is because the company is solely focused on the investment process and the investment life cycle. As a result, the firm has amassed strong market share positions across most of its businesses.
Rivals simply have a hard time competing with BNY Mellon’s expertise surrounding complex areas such as the clearing and settlement processes for trades and general market infrastructure.
This has helped BNY Mellon build up sizable scale in its markets, enabling it to provide the most cost-effective and comprehensive services to its clients.
Bank of New York Mellon Corp (NYSE:BK) is also conservatively managed and has consistently earned excellent ratings from all four major credit rating agencies.
The company seems very likely to remain a pillar of the world’s investment infrastructure and will continue being relevant and highly profitable for many years to come.
