3 Reasons to Buy Visa

Visa (NYSE: V  ) is undoubtedly a household name at this point. Yet even despite the 40% gain in the stock price over the past year, there are still three compelling reasons to buy this payments giant.


Source: Visa.

1. Incredible growth
Visa is in many ways a mature company, and its core business doesn't conjure up visions of growth that you might see at a growing start-up. But it's still able to consistently deliver incredible growth quarter after quarter. Consider that in its most recent earnings release, it saw its full-year 2013 net income rise by 18% in total and 23% per share when compared with 2012 results.

While Visa's principal competitor MasterCard (NYSE: MA  ) has also delivered impressive growth, through the first nine months of the year MasterCard has seen its net income rise by 16% in total and 20% per share. Certainly each is growing its profitability, but a 3% difference in earnings-per-share growth over the course of an investment can equate to a substantial amount of money.

Yet Visa is not simply slashing expenses or using quirky accounting methods to boost that income, as it has also steadily watched its revenue rise at impressive double-digit growth rates:



Source: Company earnings reports.

The 9% gain in the fourth quarter may cause some amount of pause, but it was due in large part to an increase in client incentives (up 20%), which is directly subtracted out of revenue. Excluding that charge, its total revenue would have been up 11%.

Despite being a mature company by the standards of many, Visa is still able to deliver impressive gains in income and revenue, which certainly makes it an attractive consideration.

2. High margins that are only improving
Visa is not only able to deliver on top and bottom-line growth through its impressive gains in revenue and income, but it has also been able to deliver impressive improvements in its profitability. It has steadily watched its operating margin (defined as its operating income divided by its net operating revenues) slowly pace upward over the past three years:


Source: Company earnings reports.

A 1% gain in profitability over the course of a year may not sound like much, but consider that Visa had almost $12 billion in revenue last year, meaning that 1% gain represented an extra $120 million available to shareholders. However, when you couple rising margins with rising revenues, as I mentioned previously, shareholders are assuredly going to benefit.

Yet not only is Visa improving its profitability: It is also continuing to pace the industry, as MasterCard through the first nine months of 2013 has an operating margin of 57.6%. Also consider that American Express (NYSE: AXP  ) , the gold standard among consumers, has $24.4 billion in revenues through the first nine months of the year, but only $4 billion in net income. By comparison, Visa had $11.8 billion in revenue and delivered $5 billion in net income to its shareholders.

Visa is continuing to edge peers not only in the pace at which it's able to bring in its revenue, but also in the ability to turn that revenue into bottom-line returns for shareholders.

3. Commitment to shareholder returns
In late October, Visa announced that it would be raising its dividend by 21% to $1.60 per share over the course of the year. This followed a 50% increase (from $0.88 per share to $1.32) in 2012. In fact, in 2013, Visa paid out $864 million in dividends and repurchased $5.4 billion in common stock, returning more than $6.2 billion to its shareholders -- an impressive amount for a company that started the year with $40 billion in assets. Yet those decisive returns to shareholders aren't poised to stop anytime soon, as Visa also announced in its most recent earnings release that its board of directors has authorized an additional $5 billion repurchase plan.

Of this announcement, Visa CEO Charlie Scharf said the company has "been consistent and decisive in returning excess cash to shareholders and maintain this commitment." He continued: "Both the increase in our quarterly dividend payment ... and our new $5 billion share repurchase authorization reflects this and our continued confidence in our ability to grow our business over the long term globally."

Any company that is growing its top and bottom line, increasing its profitability, and committed to returning that money to its shareholders is certainly one worth considering for your own portfolio.

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