Visa Charges Higher: Is Now the Time to Buy?

For the past few months I've been a full-fledged cheerleader of the "four horsemen of credit": Visa (NYSE: V  ) , MasterCard (NYSE: MA  ) , Discover Financial Services (NYSE: DFS  ) , and American Express (NYSE: AXP  ) . With data released yesterday showing that consumer borrowing had its two largest monthly increases in a decade, it's safe to say that people are relying on their credit cards now more than ever. With credit card delinquency rates still mostly in check, this bodes well for the entire sector.

Recently, MasterCard has been my best-of-breed choice in this sector, but I may need to make room for Visa as a co-No. 1.

Last night, Visa reported quarterly results that once again topped even Wall Street's lofty expectations. Revenue rose 14% to $2.55 billion during the first quarter, easily topping the $2.47 billion estimate, with profits growing 16% to $1.49, $0.04 ahead of Wall Street's consensus figure. Driving growth was a 19% jump in international transactions and a 13% jump in data processing revenue.

If there was one pesky negative in this report, it was that the new debit rules, which have taken effect and limit the amount card companies like Visa or MasterCard can charge a business, are constraining revenue. For the quarter, debit usage increased only 6% and in January results worsened to just a 4% increase. Still, Visa owns the lion's share of the debit card market even after MasterCard noted in its quarterly report last week that it stole market share from Visa.

Visa's growth plans entail focusing on international opportunities, as international revenue accounted for 46% of Visa's total first-quarter revenue. The company also plans to return money to shareholders in the form of a $500 million share repurchase program. Personally, I'd rather Visa had used that money to raise its dividend from the current 0.8% yield than to purchase shares at a new all-time high -- but we can't always get what we want, now can we?

Not surprisingly, MasterCard announced on Tuesday that it was doubling its quarterly dividend to $0.30, which places the company right on par with Visa at a 0.8% yield. Discover Financial similarly jumped its dividend by 67% after it reported fourth-quarter results in December. Its yield currently weighs in at 1.4% and puts it on par with American Express, which hasn't raised its dividend since late 2007.

But don't let Visa's or MasterCard's triple-digit price tag fool you into passing on these stocks. While I feel you couldn't go wrong with any of the "four horsemen of credit," outside of the lower dividend yield, I don't see a stronger growth duo in the financial services sector than Visa and MasterCard. It may seem a little redundant to purchase both, but with growth rates in the high-teens to low-twenties percent range, there's no way I can pass them up. I have already made a CAPScall of outperform on MasterCard, but I plan to add Visa to the ranks of outperform as well.

Which of the four credit giants is your favorite? Tell me in the comments section below and consider adding them all to your free and personalized watchlist.

With the financial sector still very hit-or-miss, you might also appreciate our latest special report, "The Stocks Only the Smartest Investors Are Buying." In it, we'll disclose a company even Warren Buffett would find attractive. Best of all, this report is completely free for a limited time.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. He thinks cash will soon become a relic you see only in a museum. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong. The Motley Fool owns shares of MasterCard. Motley Fool newsletter services have recommended buying shares of Visa, Discover Financial Services, and American Express. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that's always of interest without charging interest.


Read/Post Comments (0) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1777390, ~/Articles/ArticleHandler.aspx, 9/18/2014 11:53:03 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement