Blue chip dividend stocks are usually considered stable long-term investments, but they lost their luster over the past few years as interest rates spiked. Rising rates made risk-free CDs and Treasury bills more appealing, while making it tougher for many companies to support their dividends with consistent profits.
But as interest rates decline again, it might be smart to buy some of those blue chip dividend plays. So even if you only have $2,000 available to invest, you should consider buying and holding these two classic income stocks: American Express (NYSE: AXP) and Realty Income (NYSE: O).
American Express is often considered a credit card company, but it’s also one of the U.S.’s largest banks. Unlike Visa and Mastercard, which only issue co-branded cards instead of issuing any cards of their own, American Express is both a card issuer and its own bank.
Its total number of active cards rose 4% to 123.3 million in 2024. Therefore, it generates its revenue from both card processing fees and interest payments on its outstanding loans.
American Express controls a smaller slice of the global card-payments market than Visa and Mastercard, but that’s an intentional business decision. Since it needs to back its own cards with its own balance sheet, it only issues them to lower-risk, higher-income individuals.
The company is also better insulated from interest rate swings than Visa and Mastercard. Rising rates might curb consumer spending and credit card purchases, but they’ll still boost its banking segment’s net interest income.
That balanced business model enabled American Express to grow its revenue and earnings per share (EPS) at compound annual growth rates (CAGRs) of 10% and 12%, respectively, from 2019 to 2024. From 2024 to 2027, analysts expect its revenue and EPS to have CAGRs of 8% and 13%, respectively. Those are rock-solid increases for a stock trading at 18 times forward earnings.
The stock’s forward dividend yield of 1.2% might seem low, but the company has raised its payout annually for 13 consecutive years. Its low payout ratio of 20% also gives it plenty of room for future dividend hikes.
So if you’re looking for an evergreen financial stock that offers an attractive mix of growth and income, American Express checks all the right boxes.
