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Nobody Owns Visa For the Dividend ... Right?

By Anders Bylund – Feb 18, 2014 at 2:00PM

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Visa shares offer a paltry 0.7% dividend yield, far below every other Dow Jones stock. Do income investors have any reason to own the credit card giant?

All 30 Dow Jones (^DJI 0.01%) members pay a dividend nowadays. Being a collection of high-quality businesses with equally well-respected stocks, you might expect to find some stellar dividend payers here. And you do -- but the Dow components don't march in total lockstep.

Image source: Visa.

The smallest dividend yield on the blue-chip index today comes from recent addition Visa (V -1.04%). The credit card issuer offers a measly 0.7% yield, far below the Dow's 2.6% average yield and 31% below the second-thinnest Dow yield.

Do income investors have any reason at all to own this stock? It seems pretty obvious that the other 29 Dow shares offer higher yields and therefore should pay out stronger quarterly incomes to its shareholders.

But dividend investing isn't always that simple. Visa has plenty of mitigating factors that might make it attractive to a serious income investor.

For starters, Visa shares have tripled in price over the last three years. Meanwhile, the Dow gained 30%. Holding the dividend yield steady between 0.6% and 0.8% while the underlying share price is exploding like that is no mean feat.

V Dividend Yield (TTM) Chart

V Dividend Yield (TTM) data by YCharts.

Visa does this by boosting dividend payouts like clockwork. The company is committed to keeping its dividend policy ahead of rising share prices.

The second-weakest Dow dividend I mentioned earlier comes from fellow credit card specialist American Express (AXP 2.35%). These two stocks have a lot in common, but they took very different paths to arrive at today's seemingly disappointing payouts.

V Dividend Chart

V Dividend data by YCharts.

American Express shares bounced back strong from the 2008-2009 economic meltdown, just like Visa's did. But where Visa rewarded shareholders with a generous payout policy, American Express has barely boosted its dividend at all in the last five years. The result: American Express' yield plummeted from 6% to 1% while Visa held its ground.

Sure, American Express could always return to healthy dividend increases. But Visa never abandoned its generous payout strategy, even when things looked dark. Visa's short market history precludes it from becoming a true-blue dividend aristocrat for another 25 years or so, but I wouldn't be surprised to see it happen.

And that's a great way to build shareholder wealth in the long run.

Anders Bylund has no position in any stocks mentioned. The Motley Fool recommends American Express and Visa. The Motley Fool owns shares of Visa.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
$33,852.53 (0.01%) $3.07
American Express Stock Quote
American Express
$154.42 (2.35%) $3.55
Visa Stock Quote
$209.06 (-1.04%) $-2.20

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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