With the new year upon us, investors are hoping for better news from the market. However, it feels like each day brings the next tech company announcing it's laying off thousands of employees.
But not every company is reporting depressing news, and some of the best performers right now might surprise you. American Express (AXP 2.56%) just posted a slam-dunk fourth-quarter earnings report, complete with upbeat guidance and a dividend raise. If you haven't been compelled by the financial powerhouse until now, you might want to reconsider.
Exceptional performance under pressure
American Express was rocking throughout 2022 and is expecting the momentum to continue straight into 2023.
It rounded out the year with a 17% year-over-year revenue increase in the fourth quarter and 25% for the year. Net income declined 9%, fueled by a buildup in the provisions for loan losses due to increased interest rates. These results exceeded management's guidance. Full-year earnings per share (EPS) came in at $9.85, well above the expected $9.25 to $9.65, despite the pressured operating environment.
Management is guiding for 16% sales growth and EPS of $11.20 in 2023 at the midpoint.
Wall Street cheered these developments, and American Express stock jumped more than 10% after the earnings release. However, it's not the quarterly progress that should drive your interest in the stock, but rather longer-term patterns. Quarterly updates will rarely demonstrate linear growth, and you can see that in American Express' volume over the past two years.
American Express network volume. Data source: American Express.
Financial companies are likely to be impacted by macroeconomic factors, but investors shouldn't be too distressed about short-term effects in a company that has a robust and resilient operating model. American Express has remained profitable and cash rich throughout the economic turmoil originating with the onset of the pandemic. But some quarters will look better than others.
At the same time, you can see in the chart that volume dipped in the first quarter of 2022, making for the likelihood of demonstrating healthy growth in the first quarter of 2023.
A fresh take on an old model
If you think of American Express as a stodgy, old company with tortoise-style growth rates, you should get better acquainted with its new iteration. It set out a strategy to push growth rates higher than they were pre-pandemic, and so far, it's achieving strong results.
Management often talks about card "refreshes," but of late, it's really a company refresh. It changed gears to go after a younger generation of affluent individuals, offering new types of cards with original perks and benefits to appeal to a different crowd. However, at its core, it's the same kind of program that's focused on travel and entertainment, American Express' sweet spot.
Younger cardholders continue to generate the strongest growth, accounting for more than 60% of proprietary consumer card acquisitions, for both the fourth quarter and the full year. It was another quarter of record new card members, with 12.5 million add-ons, almost 70% of which were for fee-based cards. American Express takes the top spot in several customer satisfaction surveys, and this bodes well for both the near and long term as this group grows along with its cards.
American Express is also highly engaged in digital features, and it's forming partnerships with small companies to expand its fintech services.
A reliable, growing dividend
American Express' dividend isn't the highest yielding, but it's reliable and growing. It yields 1.2% at the current price, and management is raising it 15% for the 2023 first quarter. The dividend is supported by healthy business and robust cash generation -- features investors can depend on well into the future.
American Express is well positioned for growth this year, and its stock could outperform the broader market in 2023, as it did in 2022. However, it's still down 3% over the past year, making it a great time to buy shares before they climb.
