If you’re a dividend investor, it makes logical sense to focus on companies with strong dividend-paying histories. After you’ve created a list of businesses with good dividend track records — say, 10 or more years of annual payout increases — you can start to examine each stock to see if it suits your portfolio. And that’s when the question of whether Visa (NYSE: V) is a good dividend stock gets complicated. Here’s what you need to know.
Visa is an industry leader
Visa’s core business is processing purchase transactions for retailers. Its brand is ubiquitous and you can probably find it on a plastic card in your own wallet. If not there, then you might see a placard on the walls of the stores in which you shop that say that Visa is accepted as a form of payment. Every time a person uses a Visa-branded card, the company gets a small slice of the transaction via the fees it charges to retailers. Although any single transaction isn’t meaningful, the company handles billions of dollars’ worth of transactions. Those fees add up.
Visa is one of two major players in the industry, competing with Mastercard (NYSE: MA). They effectively have a duopoly in the transaction space. There are smaller companies that have attempted to break into payment processing, but that hasn’t slowed Visa’s growth down. For example, the company processed 10% more transactions in 2023 than it did in 2022. Transaction volume will ebb and flow over time, in part due to economic activity, but the main takeaway is that Visa is an industry giant and it doesn’t appear likely that it will be unseated anytime soon.
Visa has a good dividend history
That’s the backstory behind Visa’s streak of 16 annual dividend increases. More notably, the average annualized boost over the past decade was a huge 18%. That’s not a fluke, either; the trailing three- and five-year annualized increases were both around 16%, with the most recent hike coming in at roughly the same rate. So not only is Visa a reliable dividend payer, but it has also been a very generous payout grower.
You will probably find Visa attractive if your goal is dividend growth or if you are a growth-and-income investor. However, a problem arises for investors that are looking to generate as much income as possible from their portfolios. That’s because Visa’s dividend yield is a measly 0.75%. For comparison, the S&P 500 index yields 1.3%. The average financial stock — the sector from which Visa hails — has a yield of 1.5%, using Financial Select Sector SPDR (NYSEMKT: XLF) as a proxy. In other words, Visa’s yield is not going to be attractive to most income-focused investors.
That’s not good or bad, it just is. The fact of the matter is that every stock isn’t appropriate for every investor. And even good companies can be bad options if they don’t fit in with your investment goals.
Consider Visa, but only buy it if you want dividend growth
Visa is a successful company with a long history of rewarding investors with dividend growth. But the yield is so small that only dividend growth and growth-and-income investors will likely find the shares appealing. If you are seeking lofty dividend yields you can live off of, you’ll need to look elsewhere.
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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Mastercard and Visa. The Motley Fool recommends the following options: long January 2025 $370 calls on Mastercard and short January 2025 $380 calls on Mastercard. The Motley Fool has a disclosure policy.
Is Visa the Best Dividend Stock for You? was originally published by The Motley Fool