Yesterday, I started on a mission to find the best dividend payers in order to possibly add them to the Ultimate Sustainable Dividend Portfolio. I’m not sure how but I ended up looking at the three main credit card companies: MasterCard (MA), Visa (V) and American Express (AXP). Clearly, it’s not the dividend that got me to look into those 3. For a reason that I have trouble understanding, these companies pay tiny dividend yields. I don’t understand why. Companies that have steady revenues and earnings and that tend to do well no matter how the economy performs are ideal dividend stocks.
Let’s face it, no matter what you think of them, credit cards are front and center in the U.S. economy. Visa (V) is one of 3 companies that will be added to the Dow Jones Industrial Average [with Goldman Sachs (GS) and Nike (NKE)], one more confirmation of how important the company is.
Should You Own A Credit Card Company?
I personally think they should be part of any diversified portfolio. No, they would not fit in a dividend/income focused portfolio such as the USDP but they certainly have a place in my overall portfolio. One big reason is that while the financial services/banking sector is a huge part of the U.S. economy, I’ve been very public about my preference for not owning big U.S. banks. There are so many unknowns and I find it very difficult to trust their balance sheets, earnings, etc. It’s not that there’d be fraud involved but simply that those numbers don’t really give a full picture of the risks involved if we see another scenario like we had in Europe last year. When Warren Buffet says he likes to buy companies that he understands, I agree with him 100%. I’ll ignore the fact that he did end up investing in Goldman Sachs and assume that the terms were just too good to be true in that – he had cash and GS needed it.
Which One To Own?
The question then becomes which one to own. Even though dividends are not as important, I’ll look into these using the top 20 things that I look for when judging dividend stocks. I’ll simply put a lot more emphasis on the company fundamentals aspect. So here we go:
MA Dividend data by YCharts
Clearly, all 3 names have very weak dividend profiles with American Express being the only one over 1%. They have all been increasing their payouts at a fast pace though so there is certainly hope. I’do go for AXP but this is only a small factor in my decision.
American Express is a great credit card to hold but maybe not the best stock based on these numbers. Its revenues are growing much more slowly and while it is also cheaper in terms of P/E, I don’t think it’s enough to make up for the slow growth. I’d personally go for Visa here although MasterCard comes in very close behind.
MA data by YCharts
These companies are all very well positioned in a booming industry that faces very little competition and will continue to grow in emerging markets.
Fit Within Portfolio
Clearly, owning these names is not about generating dividend income but they should be able to generate value growth making them solid holdings.
Do You Own Either Of These Names? If so, which one(s)?