This particular Dow dividend-focused stock has achieved unprecedented performance and boosted its dividend to an unprecedented high level. Discover the compelling reasons why this remarkable investment opportunity is a must-purchase in November.
This particular Dow dividend-focused stock has achieved unprecedented performance and boosted its dividend to an unprecedented high level. Discover the compelling reasons why this remarkable investment opportunity is a must-purchase in November.
Visa (V's -2.68% decrease) hit a new all-time high in intraday trading on Oct. 31, just two days after sharing its outstanding fourth-quarter and full-year fiscal 2024 results. As a component of the Dow Jones Industrial Average, Visa has been a long-term success, but underperformed the S&P 500 this year.
Here's why I believe Visa is a strong buy-worthy Dow stock for November, and why its fiscal 2024 was an exceptional year.
Visa's resilience despite challenges
Visa's performance over the past few years is noteworthy, given that many consumer-focused companies struggled to meet expectations. Its revenue and profit margins still rose, despite a slight slowdown in growth. This growth can be attributed to its diverse revenue streams, network effects, and ability to attract new customers.
Whenever a credit or debit card is swiped, tapped, or digitally processed using its network, Visa makes money. Its income is based on payment volume and transaction numbers, meaning it still earns fees even during periods of decreased spending by consumers and business clients.
Various factors, including inflation, higher interest rates, and complex macroeconomic conditions, have been cited as reasons for a decline in consumer discretionary spending. Yet, in 2024, Visa's total payments volume increased by 8%, processed transactions rose by 10%, and cross-border transactions surged by 15%. These figures demonstrate that Visa's international business helped compensate for any changes in its domestic operations, and it's not solely depending on an increased number of transactions. In essence, consumers are spending more and using Visa cards more frequently.
Network effects refer to platforms becoming more valuable with increased use. The more merchants that accept Visa as a payment method and the more consumers and businesses that rely on Visa as their preferred payment option, the stronger the overall network. More users mean more revenue for the payment processor, leading to increased cash flow and resources for network security, marketing campaigns, and client acquisitions.
During its fourth quarter, which ended on Sept. 30, Visa renewed contracts with its largest clients in Latin America, Asia-Pacific, Canada, Central Europe, the Middle East, and Africa. It also extended partnerships with U.S. Bank and USAA. Visa signed over 650 commercial partnerships, a 30% increase from the previous year, according to Chief Executive Officer Ryan McInerney.
Visa's value-added services revenue increased by 22% in fiscal 2024. These services cater to digital-first payment experiences, simplify checkout processes, manage account-to-account payments, and more. Visa Alias Directory, for example, protects sensitive information by assigning aliases to linked bank accounts or debit cards, enabling financial institutions, service providers, networks, governments, and companies to secure their customers.
Overall, Visa's annual revenue and diluted earnings per share (EPS) reached all-time highs, as operating margins of 67% remained near their all-time highs, proving the company's consistent performance in both revenue and profitability.
Visa's substantial shareholder return program
Visa returned a substantial $20.9 billion to shareholders in fiscal 2024, including $16.71 billion in stock repurchases and $4.22 billion in dividends. In response to its latest report, it increased its quarterly dividend by 13% to $0.59 per share. In October 2019, Visa raised its dividend to $0.30, marking a significant increase in the payout over the past five years. Stock buybacks have reduced its outstanding share count by 11.1% during the past five years and 21.2% over the past decade.
The company's strong financial position and high profit margins enable it to allocate significant profits to shareholders.
It concluded its fiscal year with cash and cash equivalents of $11.98 billion, investment securities of $3.2 billion, and long-term debt of $20.84 billion. With a low net-debt position, it does not feel pressured to use excess profits to pay down debt, but instead can distribute them to shareholders.
Visa's cash-cow business model offers a high-quality earnings profile. As demonstrated by its recent performance, even during difficult macroeconomic conditions, it can still grow its revenue and profits. Compared to businesses requiring significant investments in manufacturing, construction, retail, or entertainment, Visa's business is more predictable and stable.
The following chart illustrates the impact of high-margin growth and stock buybacks over the past decade.
Over the past decade, Visa's revenue has increased by 159%. Its net income and diluted EPS have grown even more due to its ability to handle more business with minimal increase in operating costs. Diluted EPS has grown faster than net income due to buybacks reducing its share count. Visa employs three strategies to boost its EPS – artificially through buybacks, organically through its own innovations and growth, and inorganically through mergers and acquisitions.
Even though Visa is almost at its peak, it's not excessively priced. The firm holds a price-to-income (P/I) ratio of 29.8, which is merely slightly greater than the S&P 500's P/I ratio of 29.1. Nevertheless, its company structure and the robustness of its earnings surpass the typical S&P 500 stock by a considerable margin.
Visa has demonstrated its ability to surmount obstacles and continues to pledge capital back to shareholders through dividends and stock buybacks. It shines as one of the top Dow components and is considered one of the finest stocks available for purchase at present.
Given Visa's exceptional fiscal 2024 performance, with a total payments volume increase of 8%, a rise in processed transactions by 10%, and a surge in cross-border transactions by 15%, many investors might be interested in exploring potential investment opportunities. This growth in revenue streams, coupled with Visa's substantial shareholder return program, where it returned $20.9 billion to shareholders and increased its quarterly dividend by 13%, makes Visa an attractive option for those seeking to invest in the finance sector.