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American Express offers lucrative rewards that significantly outweigh its high membership fees.
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Costco operates on minimal profit margins, earning just a few cents on the dollar from its merchandise sales.
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The value of membership is clearly resonating with both American Express and Costco customers.
American Express (NYSE: AXP) and Costco Wholesale (NASDAQ: COST) have shown remarkable returns for long-term investors, consistently outperforming the S&P 500 (SNPINDEX: ^GSPC) over three-year, five-year, and ten-year periods.
Despite operating in distinct sectors—American Express in financial services and Costco in retail—both companies share several common traits.
Both American Express and Costco charge annual fees for services that have free alternatives. There is an abundance of no-fee credit cards and various grocery stores and wholesale retailers where consumers can shop without a membership. However, both firms continue to excel and surpass their competitors.
This article explores how American Express and Costco are cultivating loyal customer bases and why these dividend stocks may still be a worthwhile investment, even if the S&P 500 sees a downturn next year.
Consumers favor American Express for its extensive perks and exceptional rewards program, despite the hefty annual fees that can reach hundreds of dollars.
Among the company’s fastest-growing demographic segments are millennials and Gen Z consumers. In 2024, Amex welcomed 13 million new proprietary cards into its network, achieving an impressive 26 consecutive years of double-digit net growth in card fees.
Card fees reached $8.45 billion, representing just 16.8% of total revenue for 2024. Interestingly, cardholder rewards were the largest expense for American Express—exceeding even employee salaries and benefits—totaling $16.6 billion in 2024. This expenditure was nearly twice the revenue they earned from card fees, revealing that cardholders genuinely enjoy significant rewards.
Despite steep increases in annual fees, American Express continues to attract new customers. For instance, in September, the annual fee for the Platinum Card increased from $695 to $895, accompanied by enhanced perks to retain and appeal to its clientele.
