Getting rich with stocks doesn't have to be about hitting home runs or striking it big on lottery ticket-like gambles. Sometimes, the next Amazon is... Amazon.
One mistake I see many investors make is underestimating how long a runway winning stocks can have. Take payments giant Visa (V 3.04%), for instance; the company is a bona fide millionaire maker. The stock has generated over 2,000% in total returns since going public in 2008. That's enough to turn a $50,000 investment into over $1 million.
Investors looking to replicate that success don't need to take unnecessary risks by investing in speculative, unproven companies -- buy and hold Visa stock instead.
Here are three reasons Visa still has enough long-term upside to help make more millionaires out of patient investors.
1. Growth tailwinds from the modern economy
Is there a company better positioned for dependable, long-term growth than Visa? I'm not sure if there is. As a payment network, Visa connects merchants to financial institutions so that money flows when you swipe a Visa-branded card to pay for something. The company charges a small fee, a percentage of the transaction, for this service.
Visa has grown (and will continue growing) for two key reasons. First, consumers worldwide are moving away from cash. According to estimates from PwC, cashless payments are poised to grow by over 60% between 2025 and 2030.
Traditional payment cards (the kind you swipe) may eventually become outdated, but Visa is keeping pace with innovation. The company recently announced Flexible credentials, allowing users to access multiple payment products through a single ID. Innovation will be essential for Visa to protect its world-leading market share in payments.
NYSE: V
Key Data Points
Second, Visa is the dream business for investors who believe America's fiscal policies will continue creating inflation over the long term. The U.S. has continually run on a fiscal deficit; it's not the sole driver behind inflation, but contributes to it.
Rising prices can hurt consumers and businesses, but Visa could benefit from inflation. Its percentage-based fees would only grow as the average transaction increases in size. As long as inflation doesn't stifle spending enough to hurt total payment volume, Visa will grow as prices rise across the economy.
2. Cash flow to enhance investment returns
Visa is a very profitable business; its payment network doesn't require much investment, so it becomes increasingly profitable as more people use it. You can see that Visa has converted more of its revenue to free cash flow over time:
V Free Cash Flow (% of Annual Revenues) data by YCharts
The company uses all this cash to pay a dividend and repurchase shares. The dividend represents investment returns in the form of cash, all without having to sell your Visa stock. The company has raised the dividend for 16 consecutive years; shareholders received just over $0.10 per share in 2008. This year, Visa will pay investors $2.08 for each share they own!
Meanwhile, Visa has pumped billions of dollars into lowering its share count, which increases earnings per share and generally helps boost the stock's share price over time. Visa's outstanding shares have declined by 21% over the past decade alone.
Visa's ability to buy back its stock and pay a generous dividend simultaneously has contributed significantly to its outstanding investment returns. There is no reason this can't continue. Visa's dividend payout ratio is still just 22%, and the company's cash flow keeps rising with revenue growth.
3. Today's valuation is the right price
Winning stocks don't often come cheap, but Visa can be had for a reasonable price today. Shares trade at a forward P/E of 27.
Some might argue that Visa, worth nearly $500 billion today, is getting too big to deliver millionaire-making total returns. However, I don't see it this way.
Analysts believe Visa will grow earnings by over 14% annually over the long term. Double-digit growth in global digital payments will probably have much to do with that. Plus, share repurchases should continue, since Visa generates more cash than it needs, and the dividend payout ratio remains low. In other words, Visa should continue chugging along, doing what it's already been doing for over a decade.
Even if the stock stays at this lower valuation forever, earnings growth and the dividend alone should generate around 15% total annual returns for investors, enough to double their investment every five years. It won't happen overnight, but that's plenty to make you very rich if you're patient enough.
