Shares of Visa (V -0.54%), a leading financial services company, are up 12% this year, significantly outperforming broader equities. The company owes that partly to its latest quarterly update, which was strong. Some investors may also feel that Visa is a great stock to own if President Donald Trump's tariff policies lead to inflation, an environment in which Visa can thrive.
However, beyond recent financial results and what may or may not happen in the short run, looking at Visa's underlying business reveals plenty of compelling reasons for long-term investors to buy the stock and hold on to it for a while. Let's consider four of them.
1. Massive long-term potential
Visa operates a payment network that facilitates the processing of debit and credit card transactions. One of the main growth drivers for the company is the increased reliance on digital payment methods. People are ditching cash and checks for good reasons. Cash is hard and unsafe to carry in large amounts. And if stolen, there is no restricting its use. Compare that to credit cards, which can hold any amount of money, can be set up to require a PIN for everyday use, and can be restricted quickly in case they are stolen. That's before we mention the rapid growth of e-commerce, where cash isn't even an option.
Image source: Getty Images.
Visa has helped grow debit and credit card usage, but there is still plenty of white space ahead. Back in 2022, Visa's then-CEO Al Kelly said the following: "While cash displacement is certainly a reality, global personal consumption expenditure of cash and check grew at a CAGR of 2% over the 10 years ending in 2019. When we look at the opportunity ahead, if you assume global cash grows at 1% annually, industrywide digital penetration of personal consumption expenditure wouldn't reach 90% for several decades."
Translation: Visa still has massive long-term growth potential.
2. Wide moat
While having growth opportunities is necessary for a company's long-term success, it can only profit from them if it can thrive despite the competition that will almost inevitably arise. The key to achieving this is having a strong competitive advantage. Visa benefits from a wide moat thanks to its network effect: The value of its platform increases with use.
The more consumers own debit or credit cards branded with Visa's logo, the more attractive it is as a payment platform to merchants, and vice versa. Newcomers to the field will have a hard time convincing banking institutions and consumers to adopt their payment network instead of Visa's. And despite competition from Mastercard, its only real direct challenger, Visa has been able to perform well for a long time. That should continue.
3. High margins
Visa's business boasts high margins for one simple reason: The company's already established payment network doesn't incur significant additional costs with increased use. That grants the company an incredibly high gross margin, typically in the neighborhood of 80%, a rarity for companies of this size.
V Gross Profit Margin (Quarterly) data by YCharts
Visa's net profit margin typically falls in the high 40s to low 50s range, which is also quite exceptional for a large corporation. Visa's high-margin business should continue leading to excellent returns for investors.
4. Strong dividend program
Lastly, Visa has an excellent dividend program. It may not seem that way at first. The company's forward yield is a meager 0.7% compared to the S&P 500's average of 1.3%. However, Visa has increased its payouts by 391.7% in the past decade. Visa is also unlikely to slash its payout or suspend its dividend program altogether. The company's cash payout ratio is a modest 22.7%; it has plenty of room for additional dividend hikes. Visa's stock should already produce above-average returns over the long run. Opting to reinvest the dividend will further boost these returns.
