The market has been red hot in 2024, with the benchmark S&P 500 delivering a total return of approximately 27% year to date. Since the market has had an annualized return of 10.2% since 1965, people are reasonably worried about a potential pullback, but there are still opportunities for long-term investors.
Namely, dividend-paying stocks with a strong record of raising their payouts have a history of delivering higher returns with lower volatility than the broader market. So, with that in mind, let's take a closer look at three dividend stocks worth buying into at any time.
1. American Express
American Express (AXP -0.97%) is a favorite stock of Warren Buffett, comprising nearly 15% of Berkshire Hathaway's stock portfolio. Berkshire's initial $1.3 billion investment in American Express, completed in 1995, has since surged to $43.7 billion in value, with estimated dividend payouts reaching $409 million in 2024 alone. Remarkably, Berkshire has not reinvested any dividends. Yet, its stake has grown from about 10% to 21.5% thanks to American Express' consistent stock buybacks over the years, highlighting the power of compounding and dividend growth.
Currently, American Express offers a quarterly dividend of $0.70 per share, equating to an annual yield of 0.97%. Although the company doesn't increase its dividend every year, Buffett wrote in his 2022 annual letter to shareholders that American Express' dividend is "highly likely to increase."
Beyond its dividend, American Express recently reported its 10th consecutive quarter of record revenue, rising 8% year over year to $16.6 billion. With that revenue, the company -- which operates as a closed-loop network by issuing cards, extending credit to card users, and holding the loans on its books -- generated $2.5 billion in net income, or $3.49 in adjusted earnings per share (EPS). This represents a year-over-year increase of 2% and 6%, respectively.
As a result of another strong quarter, management increased its 2024 EPS guidance to a range of $13.75 to $14.05, which would equate to 23% to 25% year-over-year growth.
As for risks, in a closed-loop network, American Express is susceptible to defaults. It also records a non-cash expense known as provisions for credit losses for any expected losses that will likely be unrecoverable over the next year. For its most recent quarter, the company had total provisions of $1.4 billion, compared to $1.2 billion in third-quarter 2023, with management pointing to an increase reflected in higher net write-offs driven by growth in loan balances.
American Express shares trade at a price-to-earnings (P/E) ratio of 21.4, which is higher than its five-year median of 17.8, suggesting that it's richly valued. However, as the company continues setting records and returning capital to shareholders through dividends and its ongoing share repurchase program, investors will continue to benefit.
2. Mastercard
Mastercard (MA -0.74%) is another major player in the payments industry, competing with American Express but operating as an open-loop network. Each time a Mastercard is used, it charges a transaction fee, while the bank that issued the card manages the loan and collects interest. This allows Mastercard to profit from transaction volume without directly taking on credit risk.
The company recently paid its fourth quarterly dividend of $0.66 per share, yielding 0.51% annually. With a track record of 13 consecutive years of dividend increases, shareholders can reasonably anticipate another increase soon.
Mastercard also reported its Q3 2024 results. It generated $7.4 billion in net revenue and $3.3 billion in net income, equating to a year-over-year increase of 13% and 2%, respectively. Looking ahead, Mastercard management projects that the company will compound its net EPS by the mid-teens annually through 2027. These will be boosted in part by the company's consistent share repurchases, which have lowered its outstanding shares by nearly 9% over the past five years.
Mastercard has the highest P/E ratio on this list, at about 39, above its five-year median of 38, but this is arguably deserved since its revenue has grown faster than its peers' over the past five years. Specifically, Mastercard's compound annual growth rate for revenue over the past five years is 10.8%, compared to American Express and Visa (V -0.70%), which stand at 9.7% and 9.4%, respectively.
Over the next three years, management expects its net revenue to grow even faster, with a compound annual growth rate at the "high-end of low-double-digits."
3. Visa
Visa, the largest of these three companies with a market capitalization of $606 billion, operates like Mastercard as an open-loop network. The payments giant recently raised its quarterly dividend by 13% to $0.59 per share, yielding an annual rate of 0.77%. This increase marks Visa's 16th consecutive year of dividend growth, underscoring its commitment to returning capital to shareholders.
Visa delivered $9.6 billion in net revenue and $5.3 billion in net income for its fiscal fourth-quarter 2024, representing a year-over-year increase of 12% and 14%, respectively. In its fiscal 2025, management projects "high single-digit to low double-digit" growth in net revenue and "high end of low double-digit" growth.
Where Visa really stands out among its peers is its best-in-class operating margin, which was 67% during its fiscal 2024. However, this dominance has also drawn antitrust scrutiny from the Justice Department. The latest complaint alleges that Visa's practices may stifle competition and hinder the development of alternatives, particularly in the debit transactions space, where Visa holds a substantial 60% market share. Visa calls the suit "meritless," pointing to increasing competition and the variety of payment options available to consumers as a defense.
AXP Shares Outstanding data by YCharts.
From a valuation standpoint, Visa stock trades at a P/E ratio of 31.7, slightly below its median of 32.1. But perhaps more interestingly, Visa has repurchased an astounding 5.5% of its shares outstanding in 2024, far outpacing its peers and possibly indicating that management believes its stock is undervalued.
