Today I wrote puts on American Express.  From the perspective of shareholders, Amex is the class of the space.  They earn higher fees from merchants than their competitors.  They also have a model where they source their own customers and vendors instead of using a third party.  This generates even more fee income.  They also earn plenty from interest as they have the highest networth cardholders and experience the lowest writedowns of bad debt in the industry.

How well do they reward shareholders?  Dividend yield is 1.3% (and growing!) while share buybacks run over four times the rate of dividends.  Dividends have increased 4 consecutive years and historically have gone up every year except during the period they company was disallowed from doing so by the Fed due to TARP requirements.  The company has also spent over 41 billion repaying long term debt over the last three years.  Negatively, there is some dilution from issuance of new stock but the rate is far less than what is being repurchased.

I sold AXP150508P00077500 and collected 2.04 per share.  That is 20.44% return on capital at risk.  Break even is at 75.46 or 3.99% below the current spot price.  That is a Warren Buffet level return on an actual Warren Buffet stock pick.

Devour your prey raptors!

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American Express Company (AXP)

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4 thoughts on “American Express Company (AXP)

  • March 31, 2015 at 12:55 am
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    The annualized return is very high. Nice!

    AXP recently lost Costco account, so its stock price went down, which may be a good chance to buy for long-term investors.

    I noticed that the next earnings release is on 04/14. How does the earnings release usually affect your puts writing decision?

    Thank you.
    — MU

    Reply
    • March 31, 2015 at 1:30 am
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      I don’t let announcements affect my writing as 1) you can’t predict what they are going to say 2) they sandbag good news whenever possible so it is in your favor to write into earnings. The Costco thing has weighed heavily but I think it is overblown. Amex is about big spenders and Costco is about the opposite so they are not natural allies. Their last 10-Q made it clear they have many vendor partnerships up for renewal and that they plan to be “strategic” in which ones they pursue to continue. Costco just didn’t fit the mold at the price offered. This is evidence management is being disciplined about managing revenue vis-a-vis their brand. A positive they are being punished for. This grants us an opportunity to get into a GREAT business at a rare discount. I certainly hope I get assigned so I can start writing out of the money calls while I collect price appreciation and growing dividends.

      Thanks for reading MU!

      Reply
  • June 2, 2015 at 3:36 am
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    Any Put plays for AXP here ? Lots of bad news priced in …

    Thanks

    Vish

    Reply
    • June 2, 2015 at 6:03 pm
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      I currently have a 19JUN15 expiry put at 77.5 strike open on AXP. It looks poised to settle well out of the money.

      Reply

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