This Warren Buffett Dividend Stock Is the One I'd Buy With $1,000 in November

A $1,000 investment doesn’t need to prove its worth immediately. Indeed, the goal for investors should be to buy a piece of a business that can grow its earnings — and distributions — for years, and to hold onto that stake long term. American Express (AXP -1.23%) is one such company. Berkshire Hathaway‘s (BRKA -0.01%) (BRKB -0.25%) longtime association with American Express might put it on some investors’ watch lists, but its economics might be what earns it a place in your portfolio. 

A membership model with several ways to grow

First, we need to understand American Express’ business model. In a nutshell, the company provides a suite of payment-based services. It issues credit cards and charge cards (which are not the same thing), collects fees and interest from the consumers who use them, collects transaction fees from merchants that process payments on its cards, and offers lending services to borrowers. Overall, its business is solid. Revenue grew 9% year over year in its most recent quarter. Billed business increased by 8%.

American Express attracts an affluent customer base that is generally better able to weather economic downturns. Net card fees (the annual fees paid by cardholders regardless of spending volume) provide the company with a subscription-like recurring revenue stream that can help cushion the company from the impact of temporary consumer-spending slowdowns.

That said, like all lenders, its success depends in part on its ability to keep credit losses down. That means that the risk of a severe economic downturn that could lead to a spike in defaults is always one worth considering.

The dividend has room to grow

One reason that Berkshire Hathaway has kept American Express such a large part of its stock portfolio for so long is that the company continues to drive shareholder value. In part, it looks like this:

AXP Dividend data by YCharts.

As you can see, its earnings per share have increased roughly threefold since 2016. Granted, there were a few dips along the way, but for the most part, earnings grew steadily. Similarly, the company’s annual dividend payments have also nearly tripled.

However, even with its dividend growing nearly threefold in just 10 years, the dividend yield remains a modest 1.1% at the current share price. That means two things. First, management is prudent. They are ensuring that the company can withstand any credit losses that it may have to write off during an economic downturn. Second, by maintaining a moderate rate of dividend increases, management has left itself ample room to raise the dividend further and drive additional shareholder value if economic conditions improve.

Why starting with $1,000 is smart

The overall case for owning American Express stock is pretty straightforward: It’s an iconic brand with a loyal, affluent customer base. Moreover, steady earnings and dividend growth make it a strong building block for a long-term portfolio. Finally, a $1,000 initial investment is a nice middle ground between making a stock a core investment and a symbolic one.

Now we must turn to valuation. Currently, American Express shares trade at a price-to-earnings (P/E) multiple of 18.4. That’s just below its 10-year average P/E of 19.5. What’s more, it’s well below the S&P 500 average multiple of around 25.9. All in all, the stock is affordable, but it’s not the cheapest equity you’ll find on Wall Street.

As for risks, they are what you might expect for a financial stock. A recession is the main one. Economic downturns often result in slower consumer spending and a rise in unpaid bills — both of which would dent American Express’ bottom line.

Why Amex stands out

In conclusion, American Express is my pick for a Buffett dividend stock to recommend investors buy this month. Its consistent revenue and earnings growth, coupled with rising dividend payments and an affordable valuation, mean it ticks all the core boxes for a Berkshire stock: It’s an ideal investment to buy when you’re ready to let compound growth and steady dividend reinvestment work over long-term horizons rather than chasing quick gains.