Source: Visa.

Every stock on the Dow Jones (^DJI 0.02%) pays a dividend. But some income generators are richer than others, and no blue-chip company offers a slimmer dividend yield than Visa's (V 0.55%) 0.8%.

The average Dow stock provides a 2.7% yield these days. Can Visa afford to boost its quarterly payouts, and to get closer to its peers on the market's best-known index?

First, let me point out that Visa actually works on improving its dividend policies. The annual payout has nearly quadrupled over the last five years. That hardly counts as sitting still.

However, Visa's free cash flow has exploded in the same period. In mid-2009, Visa's trailing free cash flow was $744 million. The metric has since jumped to $7.2 billion. That's nearly a tenfold increase in five years, and way ahead of Visa's dividend growth.

The credit card manager today only pays out 16% of its free cash flow in the form of dividend checks. In the last six months, the company has shoveled $507 million of dividend cash into the pockets of shareholders. That's out of $3.2 billion of free cash flow generated in the same period.

There's plenty of headroom for dividend increases here. Visa is nowhere near exhausting its cash flow on pricey dividend policies.

So how is the company spending all that surplus cash?

As it turns out, Visa directed $2.2 billion into share buybacks over the last six months. That's 69% of Visa's free cash intake. At times, Visa spends so much money on buybacks that it must dip into cash reserves to finance the policy. That was the case for most of 2013, for example.

V Free Cash Flow (TTM) Chart

V Free Cash Flow (TTM) data by YCharts.

The company is returning a ton of cash straight to shareholders, but dividends just aren't the preferred method.

Share buybacks can be lucrative for stockholders, but only if the stock was undervalued to begin with. This is one reason why business managers like to engage in buybacks -- if nothing else, it's a pretty solid vote of confidence in future growth. But boards and executive teams aren't always the best investors on the market, and buybacks aren't always the best use of capital resources.

But that's just a general observation. What about Visa's specific case?

Well, the buybacks have certainly accelerated faster than Visa's share price in the last five years. They have also raced way ahead of free cash flow. In other words, Visa is using an increasing portion of incoming cash to finance its share repurchases. And the policy has not resulted of massive share price increases, which arguably is the end goal of buybacks.

Time is the only true judge of comparative trends, and it might be a little early to chide Visa for overly generous buybacks at this point.

V Chart

V data by YCharts.

But the early signs aren't great, and investors would have been served better so far by a slower buyback and more generous dividend increases.

In Visa's latest analyst call, management signaled even more buybacks in the future. "We remain bullish on our future growth prospects and fully committed to returning excess cash to our shareholders," said CFO Bryan Pollitt. But dividends were never even mentioned in that call.

I suppose we should expect Visa to stay the course for the foreseeable future. Dividends will grow, but only at a modest rate. The stock has more than doubled the Dow's return over the last year, but Visa will keep retiring shares at a breakneck speed.

So the dividend yield will stay modest, balanced by a very generous buyback policy. Keep these trends in mind if you're looking at Visa for your own portfolio -- buying it for rapid dividend growth makes no sense, but the company lets you bet big on long-term share price growth. It's a value stock, not an income generator for the long run. Invest accordingly.