3 Warren Buffett Dividend Growth Stocks That Just Hit All-Time Highs but Could Have More Room to Run in 2025

Investors often turn to Warren Buffett-led Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) for insight on market gyrations and top stocks to buy now.

And while Berkshire's portfolio has seen its fair share of changes over the years, one theme that has stayed constant is the emphasis on the financial sector through Berkshire's public equity portfolio and its insurance businesses.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. See the 10 stocks »

American Express (NYSE: AXP), Visa (NYSE: V), and Mastercard (NYSE: MA) are owned by Berkshire Hathaway and are all 3% or less off their all-time highs. Here's why all three dividend-paying growth stocks could have more room to run in 2025 and beyond.

Image source: Getty Images.

A core Buffett holding

Berkshire's American Express position dates back to 1991, making it one of his longest holdings along with Coca-Cola. In 2024, American Express gained a whopping 58.4%, making it the third best performing component in the Dow Jones Industrial Average -- behind only Nvidia and Walmart.

The epic return in American Express, paired with Berkshire trimming positions in top holdings like Apple and Bank of America, has pole-vaulted American Express to Berkshire's second largest public equity holding behind Apple.

American Express makes up 15.9% of the portfolio compared to just 0.9% for Visa and 0.7% for Mastercard. But again, the American Express position is so large because Berkshire bought the stock at a drastically lower price over 30 years ago -- not because Berkshire has added to American Express in recent years.

American Express vs. Visa and Mastercard

American Express operates a closed-loop payment network, which is a noticeably different business model compared to open-loop payment networks for Visa and Mastercard.

American Express issues its own cards, giving it more control over merchant fees and interest income. By comparison, Visa and Mastercard work with banks to issue cards. Both companies benefit from network effects and a growing global reach. The idea is to get cards into the hands of as many consumers as possible and have them use those debit and credit cards for as many purchases as possible, with Visa and Mastercard passing along the credit risks to the banks in exchange for the benefits of their processing networks.

In sum, the main difference is that American Express benefits from interest income on outstanding card balances, whereas Visa and Mastercard rely on transaction fees.

Both business models have their pros and cons. But because American Express issues its own cards, it is a higher revenue, lower margin business model than Visa and Mastercard. As you can see in the following chart, American Express makes roughly the same amount of revenue as Visa and Mastercard combined but has far lower profit margins.

AXP Revenue (TTM) data by YCharts.

American Express sports a $220 billion market cap compared to $482 billion for Mastercard and a whopping $619 billion for Visa. Over the last five years, American Express has produced a total return (including dividends) of 154% compared to 95% for the S&P 500, 67% for Mastercard, and 62% for Visa. But zoom out over the last decade, and American Express is the worst performing of the three companies -- with a 314% total return compared to 434% for Visa and 562% for Mastercard. Granted, all three companies beat the S&P 500 over that period.

Compelling value propositions

The simplest reason why all three financial stocks could be great buys, even now around their all-time highs, is that they feature elite business models and reasonable valuations. American Express has a forward price-to-earnings (P/E) ratio of just 20.5 compared to 28.6 for Visa and 32.3 for Mastercard. But again, it sports lower margins and has a more complex business model.

At first glance, all three companies have yields too low to consider worthwhile income stocks -- with just a 0.9% yield for American Express, 0.7% for Visa, and 0.5% for Mastercard. But the low yields result more from outperforming stock prices than a lack of commitment to returning capital to shareholders, especially once factoring in stock buybacks.

Over the last 10 years, all three companies have drastically increased their dividends while buying back a boatload of shares, making earnings per share grow faster than net income.

V Dividend data by YCharts.

Very few companies can afford to raise their payouts and repurchase shares at such a torrid rate. And there's reason to believe all three companies should be able to continue this pattern for years to come.

Network effects and the transition from cash to digital and mobile payments are a long-term boon for these companies. Visa and Mastercard, in particular, are also recession-resistant. Both companies may see a dip in spending per transaction, but the volume of transactions may stay close to the same even during a recession. So, earnings should be less cyclical compared to other financial companies.

The best buys in the financial sector

Financials were the second best performing sector in 2024 -- behind only communications. Big banks are helping lead the sector to all-time highs and feature higher dividend yields than payment processors. But given the lower cyclicality of the payment processors, they may be better buys for some investors.

Buying equal parts of all three payment processors is a reasonable choice for investors who are new to the industry. However, you may want to do your own research into each company to find out which one stands out as the best option for you.

Visa is my top pick of the group. In fact, it's one of my favorite Buffett stocks, along with Coca-Cola and Chevron. However, all three companies would benefit from sustained economic growth and lower regulations, which could help maintain or even increase fees in the coming years.

Should you invest $1,000 in American Express right now?

Before you buy stock in American Express, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and American Express wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $874,051!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

Learn more »

*Stock Advisor returns as of January 21, 2025

Bank of America is an advertising partner of Motley Fool Money. American Express is an advertising partner of Motley Fool Money. Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Bank of America, Berkshire Hathaway, Chevron, Mastercard, Nvidia, Visa, and Walmart. The Motley Fool recommends the following options: long January 2025 $370 calls on Mastercard and short January 2025 $380 calls on Mastercard. The Motley Fool has a disclosure policy.