From Warren Buffett took the direction of Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) in 1965, the multinational holding company achieved a remarkable compound annual growth rate of 19.8% through 2023, almost double the benchmark. S&P500The total return of 10.2% over the same period.
Given the unprecedented returns, it’s always wise to review Berkshire’s current holdings to see which stocks the Oracle of Omaha believes are worth owning. Here are three picks that align with Buffett’s timeless investing principles and demonstrate long-term potential for shareholders.
1.American Express
American Express is one of Buffet’s favorites, accounting for nearly 10% of Berkshire’s Stock Portfolio. Buffett’s initial investment in the payments and credit card company dates back to 1991, and since then he has made a remarkable return, growing from $1.3 billion to approximately $35.5 billion. Notably, the appreciation does not include dividends, which started at $41 million per year and are estimated at $409 million in 2024.
With returns like that, some investors may think American Express’s best days are over, but there’s still plenty to like about the company. First, American Express recently reported revenue of $15.8 billion and diluted earnings per share (EPS) of $3.33 for its first quarter of 2024, a year-over-year increase. 11% and 39%, respectively. Management reaffirmed its bullish outlook for 2024, including revenue growth of between 9% and 11% and diluted EPS growth of 13% to 17%, setting record levels if realized.
American Express operates differently than its competitors, MasterCard (NYSE:MA) And Visa (NYSE:V), in that it serves as a closed-loop network by issuing cards, extending credit to card users, and holding the loans on its books. This allows it to charge higher merchant fees and annual fees to cardholders. As a result, it is more vulnerable to loan defaults and must record a non-cash expense known as credit loss provisions for any expected losses that are likely to be unrecoverable during the following year. As high interest rates weigh on some businesses and consumers, this metric is on the rise for American Express, reaching $1.3 billion in the first quarter of 2024, a year-over-year increase of 18%. .
Nonetheless, American Express has $5.4 billion in net cash on its balance sheet and its management prioritizes returning capital to shareholders. Beyond that, the company has been paying a dividend since 1989, with a current quarterly dividend of $0.70 per share, representing an annual yield of 1.2%. Although American Express doesn’t always increase its dividend every year, Buffett noted in his 2022 annual letter to shareholders that he expects the dividend to be “very likely to increase.”
Finally, American Express management is repurchasing its stock aggressively, reducing its number of shares outstanding by nearly 14% over the past five years, and the board is authorized to repurchase 95 million shares additional to its current 719 million. To quote…
