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Will Visa Inc. Boost Its Buybacks in 2016?

By Dan Caplinger - Mar 15, 2016 at 12:42PM

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The payments-network giant has returned more capital to shareholders over the years.

Image source: Visa.

Credit-card pioneer Visa (V 0.70%) hasn't been a public company for very long, and its IPO came right before one of the toughest periods in stock market history. Nevertheless, Visa hasn't hesitated to reward its investors by returning capital to shareholders, and buying back shares has played an important role in Visa's overall capital allocation strategy.

One question investors have for Visa is whether it will continue to buy back more of its shares over time. With that in mind, let's take a closer look at what Visa has done with its buybacks and what it's likely to do in the future.

Getting off to a slow buyback start
Visa's emergence as a public company came in early 2008, and the payment network was fortunate to get its IPO completed before the full brunt of the financial crisis struck. The stock market's poor performance during the remainder of 2008 hit Visa shares hard, wiping out the stock's post-IPO pop and pulling it downward with the rest of the financial sector.

However, even though the liquidity concerns that pervaded the entire stock market made it difficult for Visa to establish itself as a company interested in sharing its capital with its investors, the card giant nevertheless made efforts to do so. Even in the 2009 fiscal year ending in September 2009, Visa bought back more than $2.6 billion in shares. The following two years, buybacks of $1 billion and $2 billion respectively demonstrated Visa's ongoing commitment, in addition to its belief that its share price was artificially low and being unfairly penalized for its connection to the financial system.

The experience MasterCard (MA 1.35%) went through was similar. But unlike Visa, MasterCard didn't stick to stock repurchases during the aftermath of the financial crisis, and MasterCard's break wasn't something Visa shareholders ever had to deal with.

Upping the pace
By fiscal 2013, Visa was ready for a larger capital allocation move. In October 2012, the company authorized a new $1.5 billion stock repurchase program, pointing to the success of its business outside the U.S. in helping to justify the move. New repurchase programs came at a rapid pace thereafter, with Visa authorizing $1.75 billion in February 2013, $1.5 billion in July 2013, and $5 billion in October 2013.

Visa has since remained committed to the higher repurchase amount. In October 2014, Visa authorized a new $5 billion buyback program, and the company made the same move in November of last year, sticking with the $5 billion amount.

Visa's actual buybacks haven't always used up the entire authorized amount, but they've nevertheless made an impression on investors. Fiscal 2013 buybacks of $5.4 billion were the largest during the period, but fiscal 2014's $4.2 billion and fiscal 2015's $3 billion were still respectable. Moreover, Visa bought back $2 billion in the first quarter of fiscal 2016 alone.

What's ahead for Visa's buybacks?
Visa said in late January that it still had $5.8 billion in remaining authorized funds available for repurchasing shares, and all indications are that the company will continue to use its buyback authority. Even as the stock price has risen sharply, buyback activity hasn't slowed markedly.

Moreover, Visa has a strategic reason to keep buying back shares. The company plans to issue preferred stock as part of its acquisition of Visa Europe, and without buybacks, that preferred stock would have a dilutive effect on Visa's overall investor base. Visa said in its most recent conference call that it anticipated a higher rate of buybacks over the next five to six quarters to soak up some of the dilutive impact of the preferred shares.

Visa's shares have performed so well that some would argue an extensive buyback program risks putting company money into the stock at exactly the wrong time. Yet investors could have said the same thing at several points in recent years, and Visa hasn't seen the loss of momentum many had feared. For now, buyback activity is likely to continue -- if not accelerate -- at Visa for the foreseeable future.

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Stocks Mentioned

Visa Inc. Stock Quote
Visa Inc.
$199.50 (0.70%) $1.38
Mastercard Incorporated Stock Quote
Mastercard Incorporated
$322.59 (1.35%) $4.30

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