If you're a reader of my blog, you know that I typically invest in companies with dividend yields above 2%. Visa Stock doesn't fit this investment strategy. I do on occasion take chances on riskier investments regardless of yield, or in companies with a fantastic growth opportunity regardless of yield. In this case, it's the latter. I bought 25 shares of Visa Stock at a per share price of $79.11. The total invested amount of this purchase is $1,977.75. Visa Stock pays a very low yield of 0.69%. There's not much near-term dividend income with this purchase. But there's growth; Visa has some of the strongest fundamentals of any company in any sector. The future is very bright for Visa.
Visa Company Overview
Visa Inc. is a payments technology company. The company is engaged in operating a processing network, VisaNet, which facilitates authorization, clearing and settlement of payment transactions across the world. The company provides its services to consumers, businesses, financial institutions and governments in more than 200 countries and territories for electronic payments. The company offers fraud protection for account holders and rapid payment for merchants. The company provides a variety of payment solutions that support payment products that issuers can offer to their account holders, such as pay now with debit, pay ahead with prepaid or pay later with credit products. The company offers a suite of digital, eCommerce and mobile products and services. (Source: schwab.com)
Visa Stock Dividend History
- Annual Dividend Yield of 0.69%
- Annual Dividend Rate (IAD) $0.56
- Payout Ratio (TTM) of 18.25%
- Dividend Coverage Ratio (TTM) of 547.95%
- 3 Year Dividend Growth Rate of 29.7%
- 5 Year Dividend Growth Rate of 30.9%
The chart below shows above average annual dividend yield increases. However, it not overly impressive considering the stock started at a near 0% yield in 2008. Even if Visa continues to average its 5-year CAGR of 30.9%, the stock is still years away from being above a 2% yield. This is fine with me because I'm not buying Visa Stock for dividends. I'm buying Visa Stock because Visa is the undisputed worldwide leader in credit card transactions.
Visa Stock Dividend Growth Comparison
The chart above compares Visa's dividend yield to its competition. All four companies pay a yield lower than 2%. Aside from American Express (NYSE:AXP), all companies have displayed very impressive dividend growth rates. Discover (NYSE:DFS) has a 5-year CAGR of 68.3%. Purely looking at dividend yield, Discover is the clear winner. However, when annual growth and future EPS is added to the picture, Visa is the clear winner.
Visa Stock Annual Growth
The chart above compares Visa's annual growth to its competition. Visa has a TTM EPS growth rate of 16.11% and a future estimated 3-5 year EPS growth rate of 14.61%. Discover looks good here too, as does MasterCard (NYSE:MA). I actually like all three stocks. I chose to buy Visa due to the size of its market share.
Visa Stock Valuation
- S&P Capital IQ ranks Visa 3-stars, with a 12-month price target of $80 and a current fair value of $72.
- Morningstar ranks Visa 4-stars, with a fair value calculation of $104.
The F.A.S.T Graph below shows that Visa Stock is above the orange and blue lines. For those of you unfamiliar with this tool, when the black line falls below the orange line, this indicates a stock is trading below the market average P/E ratio of 15. If the black line falls below the blue line, this indicates a stock is undervalued and is trading below its normal P/E ratio. Per the graph, over the past 10 years, Visa Stock has traded at an average P/E of 22.9. Today Visa Stock is trading at a 29.9 P/E ratio.
This is not a chart that screams buy. However, I'm buying Visa in the hope of future price appreciation. This stock generally trades at a premium. As shown, Visa rarely falls below the blue line into value territory. It happened slightly in 2010 and 2011, but other than that time period, Visa trades at a premium.
Visa Stock Takeaways
I've admired Visa for many years but avoided it due to a lack of meaningful dividends. This mistake has cost me a lot of price appreciation. In fact, my best friend has bought Visa for years and telling me I should do so. He was right. His unrealized income on Visa Stock is now north of six-figures. Having said that, it's not too late. Visa is just rolling out its partnership with Costco (NASDAQ:COST); this partnership should benefit both companies. Visa is just entering China. These to business moves have me excited about the future earnings of Visa.
Bert, one of The Dividend Diplomats, picked Visa as one of his 2 Low Dividend Yield Stocks On My Watchlist.
What do you think of my Visa Stock buy? Are you buying stocks?
Full Disclosure: Long V.