Why Visa is the Dow's Top Stock Today

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The Dow Jones Industrial Average (DJINDICES: ^DJI  ) is down 0.64% as of 3:25 p.m. EST and other indexes are also selling off without a major driver. It could be year-end profit taking, fear of tapering, or a reaction to the small budget deal in Washington, D.C. last night, but the sell-off is widespread.

The end of the year can often bring strange swings in the market. Day to day there's little economic or earnings data to drive investment decisions and taking both tax gains and losses can lead to increased volatility. Keep in mind that the Dow Jones Industrial Average is still up 24.4% this year when you include dividends, which is a great year no matter how you look at it.

Leading a sagging Dow
One stock that isn't down is Visa (NYSE: V  ) , which has advanced 3.1% today and saved the Dow from even bigger losses.

The big driver of Visa's gains is actually competitor MasterCard (NYSE: MA  ) , which announced a 10-for-1 stock split, a $3.5 billion share repurchase program, and an 83% dividend increase to $1.10 per share quarterly. After the stock split the dividend will be $0.11 per quarter.  

Visa and MasterCard often move in tandem and for good reason: Both companies profit from increased consumer transactions, and you can see below they are seeing strong net income growth as credit cards grow in popularity.

V Net Income (TTM) Chart

V Net Income (TTM) data by YCharts.

MasterCard's dividend increase is nice, but the stock still only yields 0.55% after the boost. By contrast, Visa yields 0.8% right now.

I think both companies have the cash flow to return a lot more cash to investors. As the economy improves they'll probably do so more aggressively.

Foolish takeaway
Today's Dow move looks big but without any major driver I'll chalk it up to noise investors have to get used to over the long term. Visa and MasterCard's moves are a little more substantial because MasterCard is making a statement by increasing payouts to investors. The hope is that Visa will do the same thing in the near future.

A top stock pick for you
Visa is a top stock on the Dow right now and The Motley Fool's chief investment officer has just hand-picked another great opportunity in our new report: "The Motley Fool's Top Stock for 2014." To find out which stock it is and read our in-depth report, simply click here. It's free!

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Related Tickers

9/23/2016 4:55 PM
^DJI $18261.45 Down -131.01 -0.71%
MA $101.66 Down -0.46 -0.45%
MasterCard CAPS Rating: *****
V $82.54 Down -0.82 -0.98%
Visa CAPS Rating: *****