Say this about card payment giant Visa (V -0.64%): It's not stingy about spending capital on shareholder-pleasing measures. The company regularly allocates piles of money to buying back its own stock.
Visa's stock repurchases are large, amounting to $12.7 billion over the past year. Let's take a look at the particulars behind Visa's buybacks, and what they indicate about the company.
Nearly 54 million shares bought in the past year
All told, $12.7 billion bought 53.9 million shares of stock. Breaking that down into the four quarters, Visa purchased between 10 million and 17 million shares in each, with the total spend ranging from $2.2 billion to $4.1 billion.
The company is also a consistent (if not particularly generous) dividend payer, which costs it about $1 billion per quarter. So we're looking at north of $3 billion in quarterly share price-boosting measures from the company. How can it afford such high spending on a regular basis?
The answer is: robust free cash flow (FCF). See, even though the Visa name is readily identified with credit cards, the company does not provide any credit to the holders of that plastic. Instead, it operates as a brand and as a payment processor between those consumers and the card issuers -- the financial institutions actually extending the credit powering the credit cards (or channeling the cardholder's existing funds in the case of debit cards).
A middle man supreme
As such, Visa is basically a high-margin middle man. That's why its profitability is almost always sky-high -- net margin was a very enviable 52% in fiscal 2023 -- and the FCF number immense (almost $20 billion for the period).
That's also why investors looking for a rock-solid blue chip in the finance sector should consider Visa. The world's consumers aren't going to stop using Visa plastic while old-fashioned cash transactions keep losing ground to newer technology. Barring some wild black swan event, Visa will surely remain dominant in its industry for many years to come.
