Portfolio Update: New Addition (AXP; February 17, 2015)

by FI Fighter on February 17, 2015

in Stock Portfolio Updates

Screen Shot 2015-02-17 at 7.37.55 AM

https://www304.americanexpress.com/credit-card/?inav=menu_cards_pc_chargecreditcard

On the most recent Stock Watchlist, I mentioned that I was monitoring American Express (AXP) rather closely. When the markets opened this morning, I found that shares of AXP were down yet again, so I used today as an opportunity to initiate a position.

I purchased 70 shares of AXP at $77.50/share.

American Express is an iconic brand name, and one that used to be synonymous with high status in this country. These days, the brand doesn’t carry quite the prestige that it once did, but it is still ubiquitous, and they still do offer some quality products.

AXP simply looks attractive to me at current valuations. P/E is only about 14, and the stock has fallen over 10% in just the last few trading sessions. There are a number of headwinds right now… For starters, American Express plans on cutting 4,000 jobs this year, after reporting higher than expected expenses. Next, AMEX is losing its exclusivity agreement with not only Costco Wholesale (COST) but also JetBlue (JBLU), who is switching over to Barclays and Mastercard (MA).

Over the long-term, if you believe AMEX can fix its problems, then now is perhaps as good an entry point as any. As a dividend stock, AXP still has a ways to go, but has managed to increase the dividends by about 17% over the last five increases. This isn’t up to par with what Visa (V) and MA are doing by any means, but those numbers would be solid for most dividend stocks in other industries. The payout ratio is under 20%, so there’s still a lot of room for future dividend expansion.

Not that it had any bearing on my decision to purchase shares, but as an avid travel hacker, I do find myself swiping my own personal AMEX card very frequently. The Starwood Preferred Guest is my favorite card, and I typically load in excess of $10,000/month on just that one card… And so do a lot of other travel hackers who love to accumulate SPG points! Bluebird is another popular AMEX product among travel hackers. When you mention the fact that AMEX charges some of the highest processing fees in the industry, I’m sure all these accumulative swipes over the years from members of the travel hacking community do add up to quite a noticeable amount!

Lastly, the Oracle of Omaha, Warren Buffett has been a major shareholder of AXP for decades. He currently owns “only” 150 million+ shares, with AXP making up over ~12% of his portfolio. If AXP is good enough for Mr. Buffet, it’s good enough for me! 😉

{ 10 comments… read them below or add one }

1 My Dividend PipelineNo Gravatar February 17, 2015 at 8:43 am

FI Fighter,

AXP looks like a pretty good contrarian play. The yield certainly leaves a lot to be desired, but I think it’s a solid long term appreciation and dividend growth play.

MDP

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2 FI FighterNo Gravatar February 18, 2015 at 12:23 pm

MDP,

Yeah, the yield is pretty low, so it will take a combination of appreciation and dividend growth to make this a worthwhile long term investment.

All the best!

Reply

3 WilliamNo Gravatar February 17, 2015 at 10:52 am

Must. Train. Myself. To. Delay. Gratification. And. Buy. Evergreen. Stocks. Like. Mr. Buffett.

Reply

4 FI FighterNo Gravatar February 18, 2015 at 12:24 pm

William,

Delayed gratification… it’s been four years and I’m still deferring until tomorrow. Still focused on building up the portfolio and investing for a better future. Not always easy, but hopefully it pays off in the long run for both of us.

Cheers!

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5 TawcanNo Gravatar February 17, 2015 at 11:40 am

I think this is a solid buy. V, MA and AXP will all continue making profits as long as people continue using credit cards. Credit cards are not going away anytime soon.

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6 FI FighterNo Gravatar February 18, 2015 at 12:25 pm

Tawcan,

Yes, definitely, I see a bright future ahead for all three. I never use cash and buy everything on card.

Take care!

Reply

7 NunoNo Gravatar February 18, 2015 at 2:46 am

Pay out ratio is fantastic and share buyback has been agressive last 3 years.
The premium (I think) you paid will give fruits soon.
Cheers!

Reply

8 FI FighterNo Gravatar February 18, 2015 at 12:26 pm

Nuno,

Yes, the payout ratio gives AXP lots of room to grow the dividend in the upcoming years. I’m hoping this will be one of my higher dividend growth stocks.

Take care!

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9 bethNo Gravatar February 18, 2015 at 5:36 am

As a Canadian Costco shopper I used to use my Costco Amex all the time but now I can’t use it at Costco and Amex cancelled my card. I wonder what their plan is to recoup all that lost business?

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10 FI FighterNo Gravatar February 18, 2015 at 12:27 pm

Beth,

Thanks for sharing that. I was unaware and thought AMEX was simply losing exclusivity… I didn’t realize they were being shunned from Costco completely…

That’s good to know and losing out on Costco entirely would put a huge dent on the bottom line.

It’ll be interesting to see how they plan on replacing this lost revenue…

Take care!

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