Dividend stocks are typically mature, well-established companies with low growth rates but the potential to generate ample cash to pay to shareholders. Unless there is an economic downturn or an industry-wide downturn, strong companies that build on their ability to pay dividends are rarely tested. Sometimes, companies are additionally organized to pay most of their profits to shareholders.
But this was not always the case. Many companies have suspended or cut their profits in the wake of the sharp declines caused by the pandemic. DisneyFor example, he still did not return it. However, resilient companies maintained their profits even under tough economic conditions. American Express (AXP 0.41%) It is one of those companies that has raised its dividend for many years, and shareholders should expect it to continue in any market.
Flexible customer base and tight management
American Express targets a wealthy customer base with a penchant for travel and leisure. Offer franchises in those areas that attract Cardmembers and generate growth. At the start of the pandemic, when people who could travel had no choice but to cut back on travel and leisure (T&E) spending, this strategy contributed to lower revenue. However, in showing superior resilience, the company remained profitable even at its highest declines, which were 29% y/y in the third quarter of 2020. It quickly recovered due to a rapid recovery in non-T&E spending and “strong underwriting and risk management capabilities.” for the company”. A flexible consumer base and a strict management history have kept the company in great operating position despite challenges, although it didn’t lift earnings in 2021.
The company quickly developed a strategic recovery plan to attract new customers through the credit card modernization program as well as introduce new services to its small business solutions. This puts them in an excellent position to return to growth as the economy recovers, and they are now successfully helping American Express weather persistent macroeconomic problems.
Success in reaching new customers
While most retailers have reported stress over the past few months, American Express posted explosive growth in the second quarter of 2022. Revenue increased 31% year-over-year to a record $13.4 billion, with network size increasing 25% to Nearly 400 billion dollars. Provisions for losses, the money the company sets aside to cover writedowns, increased to $410 million after falling by more than $600 million last year. That affects its net income, which fell 14% to nearly $2 billion, from $2.3 billion last year. Earnings per share of $2.57 beat the average analyst estimate of $2.41.
There was a tailwind despite the generally compressed spending environment. This includes the resumption of continued travel, specifically corporate travel, as well as a boom in goods and services, the largest category for the company. US consumer platinum, gold and Delta Airlines All co-branded cards made acquisitions. American Express card updates have attracted millions of new cardholders, specifically in the target age groups of Millennials and Generation X. The management directed the company in this direction to capture the market share in this group while increasing its purchasing power. Spending on these categories increased by 48% in the second quarter. Investments to capture a share of this market have already paid off and are likely to lead to loyalty and increased spending in the future.
Management raised its full-year forecast from 18% to 20% year-over-year revenue growth to 23% to 25%.
Where are the distributions now?
American Express returns a dividend of 1.35% at the current price, which is lower than the S&P 500 average of 1.59%. That’s in part because American Express stock has outperformed the S&P 500 this year, and the dividend yield is inversely related to the stock price.
But earnings themselves continue to grow, having increased by 160% over the past 10 years. It is also safe under any market conditions, making it the best choice for a safe dividend stock in a diversified portfolio.
American Express is the advertising partner of The Ascent, the Motley Fool Company. Jennifer Sybil holds positions at American Express and Walt Disney. Motley Fool has positions at Walt Disney and recommends them. The Motley Fool recommends Delta Air Lines and recommends the following options: long January 2024 calls worth $145 on Walt Disney and short January 2024 calls worth $155 on Walt Disney. Motley Fool has a disclosure policy.