This Warren Buffett Dividend Stock Is the One I'd Buy With $1,000 in November
Warren Buffett's longtime investment offers a straightforward way to benefit from consumer spending.
A $1,000 investment does not need to show immediate results. The key is to purchase a piece of a business that can consistently grow its earnings and payouts over time. American Express (AXP -1.23%) exemplifies such a company. Berkshire Hathaway has long associated with American Express and may influence some investors' decisions. However, the company's economic model could be the primary reason it deserves a spot in your portfolio.
American Express provides payment services. It issues credit cards and charge cards, collects fees and interest from card users, collects merchant transaction fees, and offers lending services. This diverse business has proven resilient. Revenue grew 9% year-over-year in the latest quarter, and billed business increased by 8%. American Express attracts affluent customers who are more likely to survive economic downturns.
The recurring net card fees provide a predictable income stream. Nevertheless, like any lender, the business's success hinges on keeping losses low. A severe downturn could increase defaults, posing a risk.
Berkshire Hathaway has held American Express for years because the company continues to increase shareholder value. Earnings per share have nearly tripled since 2016, and annual dividends have nearly tripled in just 10 years. Despite this, the dividend yield remains modest at 1.1%, indicating the company's prudence. They aim to weather potential credit losses during downturns while leaving room for further dividend increases if the economy improves.
Owning American Express stock is straightforward: it's a well-known brand with a loyal, affluent customer base. Steady earnings growth and dividend increases make it a solid long-term investment. A $1,000 initial investment represents a balanced approach, bridging core and symbolic investments.
Valuation-wise, American Express shares trade at a P/E multiple of 18.4, slightly below its 10-year average of 19.5 and well below the S&P 500's average of 25.9. While the stock is affordable, it's not the cheapest on Wall Street. Risks for a financial stock include potential recessions, which may lead to slower consumer spending and higher unpaid bills, negatively impacting the bottom line.
In conclusion, American Express is recommended for Berkshire dividend stock investors. Its consistent growth and rising dividends fit the criteria of Berkshire stocks: ideal for long-term growth and steady dividend reinvestment, rather than seeking quick profits.
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