1 Great Dividend You Can Buy Right Now

This Dow Jones Industrial Average component has grown its dividend by nearly 300% in the past five years and could easily grow by 10% or more per year for the next decade.

Feb 9, 2014 at 3:15PM

Dividend stocks are everywhere, but many just downright stink. In some cases, the business model is in serious jeopardy, or the dividend itself isn't sustainable. In others, the dividend is so low, it's not even worth the paper your dividend check is printed on. A solid dividend strikes the right balance of growth, value, and sustainability.

Today we're going to look at one dividend-paying company that you can put in your portfolio for the long term without too much concern. This isn't to say that these stocks don't share the same macro risks that other companies have, but they are a step above your common grade of dividend stock. Check out the previous selection.

This week, we'll turn our attention to global payment processing giant Visa (NYSE:V), and we'll examine why this financial juggernaut's growing dividend could be an income investors' dream for years to come.

Visa Logo

Source: Hakan Dahlstrom, Flickr.

Not without risks
You'd be hard-pressed to find pessimists in the payment processing sector at the moment, but that doesn't negate the fact that regulatory and economic risks do exist that could negatively affect Visa and its largest rival, MasterCard (NYSE:MA).

Perhaps the biggest risk for Visa and MasterCard relates to potential regulatory issues within the U.S. and around the globe. In the U.S., for example, the Dodd-Frank Act put a swift end to debit-card rewards for a number of consumers as a $0.21 swipe fee cap was to be put in place, capping payment processing facilitators' profits per swiped transaction. Although the Federal Reserve and U.S. district courts are still battling over the validity and scope of this swipe-fee cap, ongoing regulatory challenges for Visa and MasterCard clearly exist.

The other issue Visa and MasterCard needs to contend with is the ability to find growing economies. Considering that these are global companies, it shouldn't be too difficult to unearth strong growth in untapped markets, but ultimately Visa is very much tied to the results in some of the world's largest economic powerhouses. In other words, a global recession or a degradation in Americans' credit quality will negatively affect how much people charge on their credit card.

Charging ahead
As I said, Visa is not without its risks, but the rewards appear to significantly outweigh those perceived risks.

The biggest advantages that Visa can offer investors is easy access to global markets, a high barrier to entry, and a lack of debtor liability relative to its peers.

Pay With Cc

Source: U.S. Navy, Wikimedia Commons.

One reason Visa remains such an attractive investment is that it offers countless contracts with merchants around the globe. While it does generate a significant portion of its debit and credit gross dollar volume in North America and Europe, the underdeveloped regions of Africa and Southeastern Asia offer Visa a multi-decade opportunity to grow its top line by double digits annually.

Visa is also well protected by the fact that the barrier-to-entry into the payment processing facilitator business is extremely high. The investment in networking infrastructure, the millions of merchant partnerships that Visa has created, and the countless relationships with the world's largest financial institutions is something that none but a handful of companies could accomplish -- and certainly not overnight. This affords Visa a fair amount of protection from outside competition moving into its territory.

Finally -- and what might be my favorite investable aspect -- Visa and MasterCard are both solely payment facilitators on debit and card transactions and have no bearing on the credit quality of its consumers. In a different context, this means that if people suddenly start defaulting on their debts, lending institutions could be out of some money, but Visa and MasterCard have absolutely no liability.

This is potentially good or bad news for dual-threat financial-service providers such as American Express (NYSE:AXP) and Discover Financial Services (NYSE:DFS). When economic growth is robust and credit delinquencies are low, then American Express and Discover can actually outperform Visa and MasterCard by double-dipping on the processing and loan gains. In recessionary times, though, Visa and MasterCard can remain unaffected while AmEx and Discover may grapple with higher loan loss reserves tied to their loans, giving a company like Visa a more consistent edge.

Show me the money
The real reason we're taking a closer look at Visa today, though, is its growing dividend. Now I understand that many of you are going to look at Visa's $1.60 paid annually and scoff at the fact that this equates to just a 0.7% yield -- hardly anything to write home about. However, what you need to consider is that Visa has raised its dividend five times since going public in 2008 and it has the cash flow to easily keep raising its dividend for the foreseeable future.

Source: Nasdaq.com.

As you'll note from that chart, Visa boosted its dividend by 21% in October and has cumulatively increased its quarterly payout by nearly 300% in less than five years. If Visa were to keep up this torrid pace of dividend increases, it's quite plausible that shareholders could see $5 in annual payouts by as soon as 2018. With a payout ratio of just 18% and a double-digit growth rate, there's very little standing in the way of bigger dividends.

Dividends really are a difference maker. Find out nine of our favorites for free!
One of the dirty secrets that few finance professionals will openly admit is that dividend stocks as a group handily outperform their non-dividend-paying brethren. However, knowing this is only half the battle. The other half is identifying which dividend stocks in particular are the best. With this in mind, our top analysts put together a free list of nine high-yielding stocks that should be in every income investor's portfolio. To learn the identity of these stocks instantly and for free, all you have to do is click here now.

Sean Williams has no material interest in any companies mentioned in this article. 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, and recommends MasterCard and Visa. It also recommends 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.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.

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