The Dow Jones Industrial Average (^DJI 0.56%) (DJIA) is a composite of 30 prominent, blue chip companies. Generally speaking, that means slow, reliable growth, dividends, and low valuations. Given the economic tidings of the past year, many of these stocks have become even more appealing to investors. Visa (V -0.59%) is a top Dow stock that is trading at a bargain price today, and it's an excellent choice to bolster a portfolio.
Visa powers global commerce
Visa has been around in some form since 1958, when Bank of America rolled it out as the first consumer credit card program in the U.S. Since then, it has become the premier credit card globally, with 4.1 billion cards worldwide, more than 80 million merchant locations, and more than $14 trillion in processing volume during the past year.
In general, Visa's performance mirrors the state of the economy. As people spend, Visa, which takes a transaction fee from every swipe. When shoppers pull back, Visa's sales contract. That happened at the beginning of the pandemic, but then spending quickly rebounded, and it's still going strong despite inflation.
Revenue increased 12% over last year in the 2023 fiscal first quarter (ended Dec. 31), and earnings per share (EPS) increased 8%. Much of that was driven by cross-border commerce, which is still bouncing back as travel restrictions have been lifted. That's partly reflected in the share price, which is up about 2% in the past year versus a 7% decline in the Dow.
Unlimited potential
Even though Visa is the largest payment processing network, it's far from a dinosaur. It's a dynamic fintech company that consistently updates its products and services with cutting-edge technology. It rapidly adopted contactless payments during the pandemic, pioneering the use of embedded chips.
It also continues to expand its merchant base, card membership, and partnering financial institutions, which now number more than 14,800. It works with these institutions to offer updated payment solutions, such as tap-to-pay and digital payments. It has also rolled out Visa Direct, its instant digital payments services, with more institutions globally. One of thousands of examples is Warren Buffett stock StoneCo, a Brazilian fintech that recently inked a deal with Visa to support its credit card program with digitally embedded wallet payments.
But its biggest opportunities lie in the simple increase in spending. As it widens its network and stays on top of technology, it benefits from economic growth and rising spending.
Cheaper than you might think
Visa stock trades at a price-to-earnings ratio of about 31. At first glance, that might sound high for an established value stock. However, consider that it has a profit margin that's consistently about or more than 50%, making it worth a premium. Its profit margin is also wider than competing networks Mastercard and American Express.
Data source: YCharts
This valuation is well below the five-year average. It's also lower than Mastercard's price-to-earnings ratio. However, it is much higher than American Express's, but that's due to American Express's closed loop network, since it acts as its own issuing bank and holds much more cash than Visa or Mastercard. Banks typically sport low price-to-earnings ratios.
Data source: YCharts
Visa also pays a dividend. Although the yield isn't anything special right now at 0.8%, the dividend has been growing quickly and adds value to owning the stock. It's also higher than Mastercard's 0.65% yield.
At this price, and with its no-brainer growth potential, Visa looks like a bargain.
