You can't go wrong with blue-chip stocks when it comes to investing. Blue-chip stocks are well-known, high-quality stocks that lead their respective industries.
These are the kind of stocks that Warren Buffett gravitates toward because they are well-run businesses with a proven track record of success. One blue-chip stock you can buy today is Visa (V -1.59%) -- the payments company that dominates its industry and is a cash-generating machine.
Visa's network is its strength
Visa is a leader in digital payments, thanks to its global network. The company helps facilitate money movement across 200 countries, with its main products being credit cards, debit cards, and other payment products for clients using its network.
It makes money by authorizing and clearing transactions and from service fees for clients using its network. In 2020, Visa processed $11.4 trillion in total payments volume, almost 80% more than its closest competitor, Mastercard.
Profit margin is one key metric used to measure a company's profitability. This metric is the ratio of profit a company earns to the total amount of revenue taken in -- or the percentage of its revenue that it keeps as profit. The dominance of Visa's payment network gives the company strong profit margins. Over the last 10 years, Visa's profit margin has averaged 43%, beating Mastercard's 39% and American Express's 14.7% during the same period.
Strong margins make Visa a cash-generating machine
Free cash flow is the amount of cash a company generates after paying operating expenses and capital expenses (like purchases of property or equipment). Companies with high free cash flow have an easier time paying down debt, returning cash to shareholders through dividends and stock buybacks, and making acquisitions.
Visa has consistently generated positive free cash flow over the past decade and in 2021 it recorded more than $15 billion in free cash flow. Last year the company returned $11.5 billion to shareholders through dividends and share repurchases. Even after returning that much cash to shareholders, Visa had money left over to purchase Tink, a European-based open banking platform, for $2.1 billion.
When you take it all together, Visa's dominant payment network, high profit margins, and free cash flow make it a stellar company to own for the long haul.