Warren Buffett has always favored companies with long-term competitive advantages, reliable cash flows, and shareholder-friendly business models. These two Buffett stocks may not pay very high dividend yields. But their combination of earnings growth, massive cash generation, and steady returns on capital makes them capable of paying sustainable passive income to investors.
Let’s take a closer look.
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Warren Buffett Stock #1: American Express (AXP)
One of Warren Buffett’s oldest investments is American Express (AXP), and the stock remains one of Berkshire Hathaway’s (BRK.A) largest holdings today. American Express is a financial services company that operates a closed-loop payments ecosystem that combines card issuing, payment processing, merchant relationships and lending, all under one brand. This unique business model gives the company valuable customer data, strong pricing power, and increased spending by wealthy cardholders.
With a forward yield of 1.2%, American Express may not offer the highest dividend yield in the market. However, its dividend growth is what makes AXP stock attractive to long-term passive income investors. The company has steadily increased its dividend in recent years as earnings and cash flow have expanded. In the most recent first quarter, net income per share rose 18% to $4.28. American Express paid $700 million in dividends in the first quarter. Confident that its business model will continue to generate sustainable profits, the company also increased its dividend by 16% in the quarter.
Analysts expect earnings to rise 14% in fiscal 2026 and then rise another 14% in fiscal 2027. Management has also maintained a relatively conservative payout ratio of 20%, leaving plenty of room for future growth. This is important because consistent dividend payments are what makes a stock a sustainable passive income investment rather than high returns. American Express also aggressively repurchases shares, helping to boost earnings per share and supporting additional dividend growth in the future. The company bought back $1.7 billion worth of shares in the first quarter.
On Wall Street, AXP stock remains a “moderate buy” overall. Of the 29 analysts covering the stock, 10 rate it a “Strong Buy”, two have a “Moderate Buy” rating, 16 rate it a “Hold” and one analyst has a “Strong Sell” rating. The stock has an average price target of $363.62, implying a 17% upside potential, while the high estimate of $450 suggests a 45% upside potential from here.
