I first invested a significant amount of money in individual stocks in 2014. Up until that point, I had primarily invested in index funds while learning about things like stock analysis and asset allocation strategies. To be sure, I’ve been buying small amounts of stocks in certain companies since the early 2000s, but I’ve been more than 90% invested in funds.
Then, in early 2014, I returned my 401(k) from a former employer and decided it was finally time to buy some 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% per year), American Express (NYSE: AXP) he was prominent.
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 i Costco ended their 16-year partnership, at which time Amex’s 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, there have also been some major developments. Not long after the Costco partnership ended, Amex revamped its flagship Platinum card with perks like free Uber rides aimed at younger, affluent customers. The Platinum card has been the main driver of growth in the years since.
American Express has also done a good job of embracing online banking products, such as savings accounts, that provide a low-cost source of capital. The acquisition of Kabbage in 2020 also greatly improved the company’s banking business offering.
Overall, since I bought the stock, American Express has grown its revenue by 94% compared to comparable levels in 2014. After all, earnings are up 147%. And through buybacks, Amex has reduced its stock count by more than 26% since mid-2014.
Even in the most recent quarter, Amex grew its revenue by 8% year-over-year despite significant reports of consumers cutting back on discretionary spending. The company’s loan portfolio grew 10% year-over-year to $202 billion, and the annual rate of repayment of loans and receivables of 1.9% represents a sequential drop and it is far lower than others, which shows the quality of assets that Amex has. For context, Capital one has a net credit card repayment rate of about 5.6%.
First of all, I bought Amex as a long-term dividend growth opportunity, and the stock (and business) is doing exactly what I want. Management has done a great job of consistently growing the business in different political and economic climates and despite a few setbacks, and I have no reason to believe that will change anytime soon. As a credit card lender, Amex has the best customer base in terms of credit quality and an impressive product portfolio. As a closed-loop payment network, Amex makes money from swipe fees that should gradually increase with user spending over time.
