Visa (NYSE:V) is one of the few stocks on the market that provides stellar dividend growth, a strong balance sheet and a strong moat.
If you are looking for a stock yielding more than the S&P 500 or a 10-year treasury bond, Visa is not the stock for you.
Currently, shares of Visa are yielding only 0.56%, however, Visa has grown its dividend nearly 20% per year for the last three years and I expect them to continue increasing the dividend at that pace.
Visa Stock’s Dividend
Currently, Visa is paying a 25 cents per share as a quarterly dividend, which equates to a current yield of 0.56%. I examined the dividend history for Visa and found that they usually announce a dividend increase in October.
Based on the dividend history of Visa and the amount of cash flows they generate, I expect when Visa announces a dividend increase in October, the increase in the dividend will be to 30 cents share. That represents a 20% increase from the current 25 cents per share quarterly dividend. The chart below shows the dividend history for Visa since their IPO in 2009.
Balance Sheet & Cash Flows
Visa has an extremely strong balance sheet that is supported by strong cash flows. As of the end of the most recent quarter, Visa had $11.52 billion in cash & equivalents and long-term debt of $16.63 billion. Moody’s recognized the strength of the balance sheet in April when they raised the credit rating for Visa to Aa3. The strong balance sheet is supported by substantial free cash flows, which over the last year totaled $11.66 billion. Put it all together, you have a cash rich company with very little debt, one of the highest investment grade credit ratings and substantial free cash flows. Together those qualities support any growth opportunities that may arise for Visa as well as supporting dividend growth and share repurchases.
Visa has a strong moat given its leading position in the payments sector and the steady increase in global usage of credit and debit cards. The following chart shows Visa holds the leading position in the United States, Canada, Latin America, Europe, and the Middle East. In Asia, Visa is way behind the leader; however, they have the second largest market share and are the top non-Chinese payment option in Asia.
The second aspect that is appealing is the usage of credit cards, debit cards and prepaid cards is increasing and will continue to increase as more of the world’s population starts having access to cards. The following chart shows the steady increase in purchase volumes for credit cards, debit cards and prepaid cards. Therefore, you have Visa, which holds the largest portion of the pie, and that pie is increasing at a steady rate each year.
Source: The Nilson Report
Bottom Line on V Stock
The bottom line for investors considering Visa is they have a strong balance, strong cash flow generation, a strong moat and a very favorable underlying business that is growing.
Those factors should allow Visa to increase their dividend 15-20% per year for years to come as well as still having ample cash flow for share repurchases. Visa is currently trading near its all-time high, but there have been very few opportunities to get in at a discount given the high-quality nature of the company.
Simply put, when it comes to Visa, quality comes at a premium price.
As of this writing, Brad Kenagy does not hold a position in any of the aforementioned securities.
More From InvestorPlace
- 2 Toxic Pot Stocks You Should Avoid
- 10 Stocks to Buy From This Superstar Fund
- 7 Stocks to Buy This Summer Earnings Season
- 7 Marijuana Penny Stocks to Consider for Those Who Can Handle Risk