Meet the Secret Ingredient That Makes American Express and Costco Recession-Resistant Stocks to Buy Even If the S&P Sells Off in 2026.

Key Points

• American Express doles out generous rewards that more than justify its expensive membership fees.

• Costco is making just a couple of pennies on the dollar on its merchandise.

• Membership value is resonating with American Express and Costco customers.

• 10 stocks we like better than American Express ›

American Express (NYSE: AXP) and Costco Wholesale (NASDAQ: COST) have delivered incredible returns for long-term investors, with both stocks outperforming the S&P 500 (SNPINDEX: ^GSPC) over the last three-year, five-year, and 10-year periods.

Although they operate in two completely different sectors (and Costco doesn’t accept American Express due to its partnership with Visa), both companies have a surprising amount in common.

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American Express and Costco charge annual fees for services that have free alternatives. There are plenty of zero-fee credit cards, and there is no shortage of grocery stores and big-box retailers where you can simply walk in and shop. And yet, the two businesses continue to outshine their competitors.

Here’s how American Express and Costco are building out their loyal customer bases, and why both dividend stocks may be worth buying even if the S&P 500 sells off next year.

Image source: Getty Images.

American Express’ brilliant business model

Consumers turn to American Express for its perks and exceptional rewards program, even though the annual fees on its cards can be hundreds of dollars.

The company’s fastest-growing age groups by new accounts and spending are millennials and Gen Zers. In 2024, Amex added 13 million new proprietary cards to its network and achieved 26 consecutive years of double-digit net growth in card fees.

Card fees of $8.45 billion accounted for just 16.8% of total 2024 revenue. And it may surprise you to learn that cardholder rewards are by far Amex’s highest expense — even more than the cost of salaries and employee benefits. In fact, the company spent $16.6 billion on cardholder rewards in 2024 — nearly twice as much as it collected in card fees. Meaning that cardholders are truly getting a good deal.

The company more than makes up for this shortfall from discount revenue (merchant fees) — which accounted for 69.8% of total revenue in 2024. However, net card fee revenue increased by 39.2% from 2022 to 2024 compared to a 14.5% increase in merchant fee revenue, indicating a huge uptick in the number of people signing up for its cards.

American Express is attracting new customers despite increasing the annual fees on two of its most popular cards. In September, it hiked the annual fee on its Platinum Card from $695 to $895 but also rolled out more perks.

The hike follows an increase in the Gold Card membership fee, which went from $250 to $325 in July 2024. The price increases illustrate how management is leaning into an affluent consumer base and small and medium-size businesses. American Express imposes no preset spending limits for qualified customers and businesses. Like its generous perks, this is yet another way it encourages customers to spend more. But the formula only works if cardholders are accountable for their spending.

The easiest way for investors to ensure Amex is managing risk effectively is to examine its net write-off rate, which represents the principal loss from a consumer or small-business cardmember, net of what the company was able to recover (excluding interest). American Express has around a 2% net write-off rate, which is exceptional given its flexible spending limit.

All told, American Express has mastered the art of passing along value to customers through generous perks that cost double what it collects in card fees, but it makes up for that shortfall by charging merchants higher fees to process payments. The American Express network is growing because more people are signing up for the cards, and the more it grows, the more incentivized merchants are to accept those cards, even though they come with higher fees.

It’s a brilliant business model that highly benefits cardholders. And customer loyalty is a major competitive advantage during times of economic uncertainty. It’s a quality that Costco shares with American Express.

Costco makes membership worth it for frequent shoppers

Costco charges an annual membership, but it is also transparent about passing along value to customers. It has a razor-thin operating margin of just 3.8% — and around half of that margin comes from membership fees. Meaning that, on average, for every $100 a member spends, the company pockets less than $2 in operating profit.

Costco is a marketing genius. For 40 years, it has kept the price of a quarter-pound beef hot dog with a 20-ounce soda at just $1.50. And it doesn’t regularly raise the price of its annual memberships, unlike other businesses that consistently jack up prices.

The hot dog is what’s known as a loss leader. It’s a way to get customers in the door rather than profit from that specific product. Kind of like how razor handles are typically cheap, whereas the blades are more expensive and act as repeat business for the razor handle manufacturer.

Costco’s value proposition resonates with customers. The two biggest barriers to making a purchase are whether the price is reasonable relative to alternatives and if the price justifies the want/need.

By conveying value, consumers may have a higher chance of going into Costco with their guard down. So if they see something they like, they won’t ask if it’s a good price, but rather, assume the price is at least fair and then just decide if they want it or not.

It’s similar to a strategy used by Walmart, which goes toe-to-toe with Amazon on price. This has proved to be hugely effective in today’s age of constrained consumer spending. It’s a big reason Costco’s and Walmart’s stock prices have done phenomenally well and why experience-based retail outlets like Target are struggling to get shoppers in the door.

Two exceptional companies that are built to last

Membership fees are a key profit driver for Costco, whereas they make up a relatively small part of the revenue mix for American Express, which passes along value to cardholders through rewards that justify card fees. It loses money on cardholder reward expenses but recovers it through merchant fees.

Whereas membership fees are pure profit for Costco, and in exchange, it passes along value by selling goods in bulk at razor-thin margins. The numbers show that both memberships truly are a great value for customers, which is a catalyst for customer loyalty.

Both companies are extremely well run, making them strong choices for long-term investors. However, American Express stands out as a better buy than Costco for 2026 because it is a far better value at 22.3 times forward earnings compared to 47 for Costco.

Amex has been raising its dividend rapidly for years, but it yields just 1% because the stock has performed so well. Whereas Costco yields just 0.6% but occasionally pays a special dividend when it reaches a cash surplus. I prefer Amex’s rapidly increasing quarterly dividend to occasional one-time payouts from special dividends.

All told, American Express and Costco are such good companies that the only question from an investing standpoint is if the valuation checks out. Investors who don’t mind paying up for quality may want to buy both stocks, whereas value-focused investors may want to go with American Express over Costco.

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American Express is an advertising partner of Motley Fool Money. Daniel Foelber has positions in Target and has the following options: short October 2025 $100 calls on Target. The Motley Fool has positions in and recommends Amazon, Costco Wholesale, Target, Visa, and Walmart. The Motley Fool has a disclosure policy.