Founded in 1958 and headquartered in San Francisco, Visa is one of the most widely-known financial companies in the world. It provides financial services under several brand names, most notably Visa, Visa Electron, Interlink, VPAY, and PLUS. Its primary business is the facilitation of digital payments between consumers, businesses, merchants, financial institutions, and government entities. Through its VisaNet operation, it enables authorization, clearing, and settlement of payments.
With a customer loyalty score of 87%, Visa is ranked in 65th place of Comparably’s Global Top 100 Brands list, and 2nd in Banking and Financial Services.
Performance
Visa has shown steady growth in its revenues since 2011, except in 2020 when revenues were adversely affected by the Covid-19 economy. As can be seen in the charts below, revenues have recovered strongly since. The steep trajectory of the trailing 12-month line since the last quarter of 2021 indicates not only strong revenue growth, but also that revenues are now back to where they were heading pre-pandemic.
Earnings per share (EPS) have outpaced revenues. While revenues have increased by 164% between 2011 and 2021, EPS have been driven from $0.89 to $5.04: an increase of an incredible 466%.
Analysts’ expectations for EPS in the quarter to September 2022 average $1.86 – a growth of 14.8% on the corresponding quarter 2021. This would equate to around $7.42 for the full year, an increase of 25.5% in 2021.
Dividend Profile
Dividend payouts have increased from $0.169 in 2011 to $1.335 in 2021. Visa has now increased its dividend payout for 13 years straight, and there is no reason it’ll be changing this policy anytime soon.
Over the past three years, the dividend has grown by an average of more than 15% per year, and over the last 10 years by an average of 22.80% per year.
Visa’s ability to weather the storm of a financial shock has been proven in recent years, and with free cash flow of more than $14 billion in 2021, it has the financial muscle to seek growth opportunities and maintain a healthy dividend policy.
With an average dividend payout ratio of 0.23 over the last 10 years and continued growth in revenues and earnings, there is plenty of room for the company to offer significant boosts to the dividend in the coming years.
Growth Prospects
Visa’s growth prospects are buoyed by the greater use of digital and card payments around the world. Its revenues may have been dented by the worldwide reaction to Covid-19, but the swifter shift to greater consumer use and acceptance of digital payments has been a tremendous boost to financial businesses like Visa Inc.
Visa’s revenues should be further enhanced by its standing as the world’s biggest credit network. As interest rates rise, we could expect its margins to widen. But it is certainly not a one-trick pony. Its financial services are well diversified, with revenues generated from:
- Services
- Data processing
- International transactions
It is also investing in new business lines, such as open banking services. Its strong business and financial position were highlighted in its Q3 report, in which management noted:
“Sustained levels of growth in overall payments volume, cross-border volume and processed transactions demonstrated the resiliency of our business model… While the economic outlook is unclear, we remain confident in our ability to execute with discipline and expand Visa’s role at the center of money movement.”
Consequently, we expect strong EPS growth to continue.
Indeed, looking ahead to 2023, the average estimate for full-year EPS from 34 analysts is $8.32, with some analysts suggesting EPS could be as high as $8.87.
Business Risk
No analysis is complete without considering potential risks to the business.
There is certainly a good deal of economic uncertainty prevalent today. Interest rates are rising, which is a double-edged sword. While margins at Visa may improve further, there is always the risk of substantial bad debt write-downs, and should consumer spending be hit hard then revenues at Visa may also decline.
The turbulent geopolitical backdrop may also pose a problem, though Visa was one of the first to pull out of Russia in reaction to its invasion of Ukraine – and its revenues have not yet suffered as a result.
Other risks include legislation, with some lawmakers seeking to increase the competitive environment and thus reduce fees and interest that credit card companies levy on customers. However, a bill that was introduced earlier this year has failed to be passed.
Final Thoughts
Visa’s stock price has drifted lower over the last 12 months, falling from $231 to its current price of $190. This represents a fall of around 17.8%, in line with the decline in the broader market.
While there are risks to the business, Visa is in a strong financial position to take advantage of the opportunity.
Although consumer spending may take something of a roller coaster ride in the coming months as the recession threatens, Visa’s position as a market leader, and its high customer loyalty scores, should help it to weather any storm and continue its growth path.
Yes, the stock is trading at a high PE ratio. The dividend yield is not the best in the market. But Visa’s financial strength, and exceptional business model, promises continued dividend growth and stock price performance at least in line with the equity market. With Its growing earnings per share, it’ll likely to lead to attractive dividend hikes. Certainly, Visa is a valuable addition to a diversified dividend portfolio.