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Top Picks 2017: American Express

01/13/2017 6:00 am EST


Kelley Wright

Managing Editor, Investment Quality Trends

“Don’t leave home without it,” is perhaps one of the more memorable advertising tag lines, even though the company hasn’t used it in its advertising in ages, notes Kelley Wright, income expert and editor of Investment Quality Trends.

American Express (AXP), more colloquially known as AmEx, is more — actually a whole lot more — than just a charge/credit card company.

The “more” includes the following: Network services; expense management products and services; travel-related services; merchant acquisition and processing; merchant financing; fraud prevention services; and the design of customized customer loyalty and rewards programs.

AmEx took a hit last year when it lost its exclusive contract with Costco. The conventional wisdom was that its earnings would not recover after such a big loss.

As is often with the conventional wisdom, it was wrong. AmEx has turned in robust earnings and has increased its dividend.

We like AXP in a rising interest rate environment, which by all measures seems to be underway given the increase in bond yields across the yield curve.

AXP offers excellent value when its dividend yield is 1.80% or higher, which based on the current cash dividend of $1.28 equates to a stock price of around $71 per share.

The upside potential is a dividend yield of 0.90%, which based on the current cash dividend equates to a stock price of $142.

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