American Express (NYSE: AXP) remains a long-term favorite of Warren Buffett and Berkshire Hathaway, known for its unique business model that differs from competitors like Visa and Mastercard. Unlike open-loop networks, American Express operates a closed-loop system, issuing its own cards and bearing the credit risk. This model fosters a closer relationship with its affluent customer base, reducing switching costs and incentivizing higher usage through generous rewards and perks.
The company has been a consistent performer, with its dividend growing steadily. The next dividend payment of $0.95 per share is scheduled for November 10, with shareholders needing to own shares by October 9 to qualify. To generate $1,000 in annual dividends, investors would need approximately 263 shares, costing around $79,631 at the current share price of $302.78. Although the dividend yield is modest at 1.3%, American Express's payout ratio of 21.5% indicates strong financial health and room for future increases.
American Express has faced challenges, including an 18.2% decline in 2026, attributed to concerns over declining consumer spending and rising operating costs. However, the company's fundamentals remain robust, with management guiding for a 10% increase in fiscal 2026 revenue and even faster earnings growth. Berkshire Hathaway's long-term investment in American Express highlights its potential for significant returns, with a yield on cost of 37.2% as of 2025.
Investors considering American Express should weigh its long-term growth potential against current market conditions. The company's ability to reward shareholders through dividends, stock buybacks, and earnings growth makes it a compelling option for those seeking a high-quality blue-chip stock.