Dividend investors may not like Visa's dividend yield of less than 1% -- but that may all be changing.
Visa (V +0.18%) has had quite a run in 2013, as its stock is up almost 35% on the year and it just the other week announced its net income eclipsed $5 billion on the year. When you look at the company's income before taxes and exclude one-time charges, you'll see that its income has more than doubled since 2009:
Source: Company SEC filings.
As a result of its continually great results, the company has also steadily raised the dividends it paid out to its shareholders year after year after year. But see that while its income has risen to resemble straight-line growth, its dividend is seemingly growing exponentially:
Source: Company SEC filings.
In fact, for income investors, the year was capped off when the company announced it would be raising its dividend once more -- by 21% to $0.40 per quarter. This moved raised Visa's dividend yield to 0.8% based on current stock prices, which is well above what MasterCard (MA 0.43%) pays out, but still below American Express (AXP 0.28%):
|
Company |
Dividend Yield |
|---|---|
|
Visa |
0.8% |
|
MasterCard |
0.3% |
|
American Express |
1.1% |
Source: Yahoo! Finance.
However, while there is a gap between American Express and Visa when it comes to dividend yield, that gap has narrowed significantly when considering the payout ratio, which measures the dividends paid divided by earnings per share:
|
Company |
Payout Ratio |
|---|---|
|
Visa |
17.4% |
|
MasterCard |
7.1% |
|
American Express |
19.6% |
Source: YCharts.
As you can see, Visa has a rather friendly policy when it comes to returning its earnings to shareholders through the form of dividends, especially when compared to MasterCard. But in addition to the recently announced increased dividend, Visa also included in its most recent earnings release that its board of directors approved its move to repurchase an additional $5.0 billion in common stock. So should dividend-hungry investors worry that payout ratio may start declining following the move to repurchase shares?
Thankfully, the answer is no, because in the 2013 fiscal year, Visa actually also repurchased an additional $5.4 billion in its common stock and paid the highest amount of dividends on record:
Source: Company SEC filings.
In fact, Visa CEO Charlie Scharf highlighted in its earnings announcement, "both the increase in our quarterly dividend payment by 21% to $0.40 per share and our new $5 billion share repurchase authorization reflects this and our continued confidence in our ability to grow our business over the long term globally."
Visa has continually had resounding success in increasing its revenue and income and is poised to do so again in 2014 (the company has once more guided for earnings-per-share growth in the mid to high teens). It's also affirmatively committed in in returning that money to shareholders in the form of both dividends and buybacks. Of course, there are no sure things, but Visa raising its dividend in 2014 is about as sure as they come.
