What American Express' Dividend Hike Means for Investors

American Express Co. signage on the floor of the New York Stock Exchange (NYSE)

(Image credit: Michael Nagle/Bloomberg via Getty Images)

American Express (AXP) is the worst Dow Jones stock Friday even after the credit card giant beat top- and bottom-line expectations for its fourth quarter and announced a dividend hike.

In the three months ending December 31, American Express said its revenue increased 8.7% year over year to $17.2 billion, boosted by card member spending that was up 7.5% to $408.4 billion. Its earnings per share (EPS) rose 16% from the year-ago period to $3.04.

"2024 was another strong year for American Express," said American Express CEO Stephen J. Squeri in a statement. In addition to record annual revenues and net income, the company also "saw record levels of annual Card Member spending, record net card fee revenues, and a record 13 million new card acquisitions, and we continued to add millions of merchant locations to our network globally," he added.

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American Express' results beat analysts' expectations. Specifically, Wall Street was calling for revenue of $17.16 billion and earnings of $3.03 per share, according to Barron's.

For its new fiscal year, American Express expects to achieve revenue growth in the range of 8% to 10% and earnings of $15.00 to $15.50 per share. This represents year-over-year bottom-line growth of 12.4% to 16.1%.

American Express hikes its dividend

American Express also announced a 17.1% increase to its dividend. The company's new quarterly dividend rate is 82 cents per share, beginning in the first quarter of 2025.

This marks the fourth straight year AXP has hiked its dividend, which can boost its overall return. "Shares in companies that raise their payouts like clockwork decade after decade can produce superior total returns (price change plus dividends) over the long run, even if they sport apparently ho-hum yields to begin with," writes Dan Burrows, senior investing writer at Kiplinger, in his feature "Best Dividend Stocks to Buy for Dependable Dividend Growth."

This is because steady dividend hikes "lift the yield on an investor's original cost basis. Stick around long enough, and the modest yield you received on your initial investment can hit double digits one day," he adds.

"I am confident that we can sustain our strong momentum over the long term, driven by the many attractive opportunities we see across our premium customer base, particularly with Millennial and Gen Z consumers and in key international markets, along with our operating expense leverage which enables us to continue investing at high levels to drive growth," Squeri said.

Is AXP stock a buy, sell or hold?

American Express has put in a tremendous performance on the price charts over the past 12 months, up nearly 78% on a total return basis vs the S&P 500's 27.5% gain. Yet, Wall Street is on the sidelines when it comes to the Warren Buffett stock.

According to S&P Global Market Intelligence, the average analyst target price for AXP stock is $304.38, representing a discount to current levels. Meanwhile, the consensus recommendation is a Hold.

But there are some bulls to be found. Financial services firm Truist Securities, for one, recently initiated coverage on the financial stock with a Buy rating.

"There are competitive moats and long-term tailwinds for the company – such as a loyal high-end customer base and international reach – that we believe outweigh some of the more recent questions that have started rising around sustainable growth," writes Truist Securities analyst Brian Foran.

And while AXP is pricey at current leves, Foran believes "there is additional upside to the stock as spend growth comes back especially on the U.S. commercial side."

Joey Solitro is a freelance financial journalist at Kiplinger with more than a decade of experience. A longtime equity analyst, Joey has covered a range of industries for media outlets including The Motley Fool, Seeking Alpha, Market Realist, and TipRanks. Joey holds a bachelor's degree in business administration.