Dividend stocks aren't just for conservative investors -- they can still generate market-beating returns. Look at payment technology company Visa (V +0.25%). The stock has grown more than 14-fold since going public in 2008, despite declaring its first dividend months after its IPO.
Its $440 billion market cap could make repeating that growth challenging, but don't worry if you feel you've missed out. Here is why Visa's life as a dividend-growth superstar is just beginning.
NYSE: V
Key Data Points
A cash-flow geyser
Visa's primary business is its payment network -- the "rails" that enable merchants and banks to communicate and send money back and forth when using your Visa-branded payment card. Visa makes money by taking a small percentage of each transaction on its network. The network is fully built and doesn't need much additional investment, even as revenue grows.
Image Source: Getty Images.
The business is highly profitable. The chart below shows how company has converted an increasing percentage of its revenue into free cash flow. Visa is getting $0.60 of free cash flow from every revenue dollar, a staggeringly high rate that could be among the highest of any company on Wall Street.
V Revenue (TTM) data by YCharts
A very lucrative business model typically attracts competition, but Visa benefits from network effects. Visa-branded cards make up about 43% of card transactions worldwide; merchants have little room to push back against Visa's fees. If you don't support Visa, you're potentially losing a ton of customers who can no longer transact with you.
An emerging dividend growth star
Visa has shown a clear intention to return cash to shareholders through dividends; the company paid its first dividend the same year it went public, and began raising that payout shortly after. Visa's now grown the dividend for 13 consecutive years. It's halfway to becoming a Dividend Aristocrat already, and there's a lot to be optimistic about in the future.
Below, you can see how rapidly the dividend has risen -- it's grown 24% on average over the past decade. In other words, the amount paid has doubled every three years, dramatically increasing long-term investors' income.
V Dividend data by YCharts
Perhaps more impressive is that Visa's strong business growth has kept the dividend affordable despite its significant increases. The dividend payout ratio remains at just 20% of cash flow, so Visa has a ton of room to grow the dividend for years to come.
Still room for growth
Again, Visa's probably beyond its "hyper-growth" days, but there seems to be plenty of gas left in the tank. Visa's grown revenue by 10% per year on average over the past decade. COVID-19 hurt Visa, but the company grew revenue by 10% in its 2021 fiscal year, which seems to indicate it's back on track.
People have been slowly moving away from cash as a payment method, and that big-picture trend has helped Visa as the market leader in payment cards. Approximately one in five worldwide transactions use cash today, so there could still be room for Visa to expand over the coming years. Most of the upside seems to be in emerging markets like Latin America, Africa, and the Middle East, where cash remains the most-used payment method.
Nobody can predict the future, but Visa remains the king of the mountain when it comes to payments, and it's hard to see a future where a deep-pocketed market leader like Visa doesn't play a significant role. Investors can sleep well at night owning Visa, and shareholders should receive more and more income from the company moving forward.
