The first time I invested a significant amount in individual stocks was in 2014. Until then, I was primarily investing in index funds while learning about things like stock market analysis and allocation strategies of assets. Granted, I had been buying small amounts of shares of some companies since the early 2000s, but I was over 90% invested in funds.
Then, in early 2014, I rolled over a 401(k) from a previous employer and decided it was finally time to buy larger (for me) positions in individual stocks. I invested in four stocks, two of which are still in my portfolio today. Both produced positive total returns, but with a total return of 264% in about 10 and a half years (about 13% annualized), American Express (NYSE:AXP) was the star.
A lot has happened in the 10 and a half years since I became an Amex shareholder, and not all of it has been good. For example, in 2016, American Express and Costco ended their 16-year partnership, and at the time, Amex co-branded Costco credit cards accounted for about 10% of all Amex cards in circulation and about 20% of its interest-bearing credit card loans.
However, big developments have also taken place. Shortly after the Costco partnership ended, Amex revamped its flagship Platinum card with perks like free Uber rides aimed at younger, affluent customers. Since then, the Platinum card has been a major growth driver.
American Express has also done a good job adopting online banking products, such as savings accounts, which provide a low-cost source of capital. The acquisition of Kabbage in 2020 also significantly improved the company’s business banking offering.
Overall, since I bought shares, American Express has increased its revenue by 94% over comparable levels in 2014. Ultimately, profits are up 147%. And thanks to buybacks, Amex has reduced its number of shares outstanding by more than 26% since mid-2014.
Even in the most recent quarter, Amex grew revenue 8% year over year, despite major reports that consumers are curbing discretionary spending. The company’s loan portfolio grew 10% year-over-year to $202 billion, and the 1.9% annualized rate of its card member loans and chargeable receivables represents sequential growth. decline and is well below its peers, showing the quality of Amex’s assets. For context, Capital one has a net credit card charge rate of around 5.6%.
First, I bought Amex as a long-term dividend growth opportunity, and the stock (and the company) is doing exactly what I want. Management has done an excellent job of consistently growing the company in various political and economic climates and despite several setbacks, and I have no reason to believe that will change anytime soon. As a credit card lender, Amex has a blue-chip customer base in terms of credit quality and an impressive product portfolio. As a closed-loop payment network, Amex charges payment fees that are expected to gradually increase with customer spending over time.
