The year 2020 has not exactly been a great one for financial stocks. Despite the overall market hitting record highs this fall, bank stocks are still lagging in terms of price recovery. JPMorgan Chase ( JPM -0.55% ) and Bank of America ( BAC -1.26% ) are down roughly 10% and 14.3% respectively in 2020, but other financial stocks that aren't banks are doing better.
For instance, financial technology stocks have had a great 2020, as companies like PayPal ( PYPL -0.44% ) (price up 121%) and Square ( SQ 0.67% ) (price up 270%) benefitted from changing trends in how consumers make transactions.
Visa ( V -0.14% ) is a bit of a hybrid that offers both traditional financial services and fintech services, leading to its stock gains falling somewhere in the middle -- up about 13.3% so far in 2020. Visa rewarded investors with strong gains prior to the onset of COVID-19, and like with other pandemic-beaten stocks, 2021 looks to bring improved returns. In fact, Visa has been making several changes to position itself for high growth.
Here are five things investors can expect in the coming year from the company that's everywhere.
1. A return to revenue growth
If people stop making purchases, Visa doesn't make money. During the worst of the pandemic, an economic downturn and high unemployment meant that less money was changing hands, and Visa's transaction revenue declined. Revenue dropped 17% year over year in both the fiscal 2020 third quarter (ended June 30) and the fourth quarter (ended Sept. 30).
Those drops were much better than many of its competitors, mostly because customers need to buy essentials in any environment and they were often using their credit cards to do it. Even in the second quarter (ending March 31), which included shutdowns in China and the start of some shutdowns in other global regions, Visa showed its resilience with a 7% rise in revenue.
As the world economy picks up its pace, Visa's revenue should increase as well.
2. New ways to pay
Visa has been working with retailers (especially in the U.S.) to expand the ways for customers to pay with new technology. Tap-to-pay allows customers to simply touch their card to a credit card terminal for payment, and Visa extended the technology to work with a phone or other device for easier small business contactless payment solutions. Along with ease of use, it also provides an added level of security as the card no longer needs to leave the cardholder's possession.
Its token program gives customers a unique, digitalized token tied to their accounts that makes payments simpler and more secure by masking the cardholder's actual account number. Ansar Ansari, senior vice president of Visa's digital payment products, said "Tokenization is one of the most effective tools Visa uses to fight fraud and improve the digital payment experience."
3. More small business solutions
Visa is helping build small businesses through its Fast Track program, which brings fintech start-ups, such as digital wallets and digital payment systems, into the Visa fold.
David Arana, CEO of Konfio, a digital payments company in the program, said, "By working with Visa and through the Fast Track program, we have been able to offer small businesses access to financial services that they're often not given."
The company has also joined its financial services rivals by offering its own set of small business solutions to empower many of its clients to leverage digital technology. It works with partner companies to offer a wide range of solutions, such as automated data reconciliations through business-to-business partner Boost, cloud accounting with FreshBooks, and payroll services with Deluxe.
4. More acquisitions
One of the ways Visa has been able to deliver all of these innovations is through smaller company acquisitions. In October, it acquired Yellow Pepper, a fintech that offers digital payment technology in Latin American markets.
Visa was planning to buy Plaid, a company that allows users to securely connect financial accounts to their apps, before the deal was struck down by a U.S. Department of Justice decision that called the partnership a monopoly.Visa is still working on salvaging the deal, which may come through in 2021.
5. Raised dividends
Visa is far from a dividend investor's dream. It pays a meager 0.6% dividend yield at the current price, way below the S&P 500 index average of 1.8%. And that's not for lack of capital, as it operates a high-margin business that generates plenty of cash.
But the company does raise its dividend annually and did so again in October despite the relatively poor revenue performance. Visa has a 24% payout ratio, which is quite sustainable, and the dividend has jumped almost 80% just in the past three years.
Visa is a great stock to hold with excellent future prospects for 2021 and beyond. It will recover along with the economy, and its focus on expanding its business means revenue has more ways to grow, resulting in higher gains for investors.