Last update on 2024-06-28

Visa (V) - Dividend Analysis (Final Score: 6/8)

Get a comprehensive analysis of Visa (V) dividend performance with a final score of 6/8 based on an 8-criteria system to evaluate its stability and growth.

Short Analysis - Dividend Score: 6

We're running Visa (V) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

The analysis of Visa's dividend policy using an 8-criteria system resulted in a Dividend Score of 6. Visa's dividend yield is lower than the industry average, mainly due to its strong stock price performance. The dividend growth rate has been inconsistent, failing to maintain a steady 5% growth over the years. On the positive side, Visa maintains a low payout ratio, well below 65%, suggesting a conservative approach towards dividend payments.

Insights for Value Investors Seeking Stable Income

Visa shows strong financial health with low payout ratios and well-covered earnings and dividends. Despite its lower-than-average dividend yield and inconsistent growth rate, its reliable stock buybacks and robust cash flow make it a worthy choice for investors focusing on long-term gains and capital preservation.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Explain the criterion for Visa (V) and why it is important to consider

The current dividend yield for Visa of 0.7183% is considerably higher than what it has been over most of the past 20 years. However, it falls significantly short when compared to the industry average of 2.43%. This discrepancy can be attributed to Visa's strong stock price performance over the years, which somewhat offsets the lower relative yield. Investors may find the consistently high stock price appealing, but they must weigh it against a lower dividend yield compared to industry standards. This trend suggests a potential concern for yield-focused investors, yet a positive sign of stronger stock performance overall.

Average annual Growth Rate higher than 5% in the last 20 years?

The Dividend Growth Rate criterion measures the percentage increase in dividends per share paid by a company annually. A growth rate over 5% is typically considered strong and indicates good financial health and investor return potential.

Analyzing Visa's dividend growth rate over the past 20 years, the data shows some fluctuations. Initiating its dividend in around 2008, Visa's DPS ratio had highs in some years with significant percentage increases in the initial phase such as 109.5238% in 2008, which then drastically dropped. However, post-2015, the growth seemed to stabilize but has not maintained a steady increase above 5% for many consecutive years. Additionally, negative growth, as seen in 2017 with -4.8276%, does not support a consistent trend above 5%. The average dividend ratio is approximately 21.7%. Despite the older nominal values initially inflated by inception year changes, newer increments are conservative and fail a steady 5% expectation, indicating a volatile dividend policy, generally inconsistent with strong, linear growth required by this criterion. So the trend is not good.

Average annual Payout Ratio lower than 65% in the last 20 years?

This criterion examines if a company's average payout ratio is below 65% over the last two decades.

Visa's average payout ratio stands at approximately 17.21%, which is significantly below the 65% threshold. This low payout ratio indicates a conservative approach to dividend payments, suggesting that Visa retains a substantial portion of its earnings for reinvestment and growth. As a result, this trend is highly favorable, as it demonstrates Visa’s capacity to maintain or potentially grow its dividend while preserving capital for expansion and innovation. Moreover, the historical consistency in maintaining a low payout ratio further reflects Visa’s robust financial health and prudent management practices.

Dividends Well Covered by Earnings?

Earnings per Share (EPS) is a company's profit divided by the outstanding shares of its common stock; and Dividend per Share (DPS) is the total dividends paid out by a business, divided by the number of outstanding shares. To ascertain if dividends are well covered by earnings, it's crucial to compare EPS to DPS. This indicates whether a company makes enough profit to sustain its dividend payouts.

The data indicates that Visa (V) has experienced generally increasing EPS from $-0.2855 in 2003 to $10.6755 in 2023, reflecting strong growth in profitability. Dividends per share (DPS) too have been generally rising, from $0 in the early 2000s to $1.87 in 2023. The ratio of DPS to EPS over the years consistently remains below 50%, indicating that Visa is not over-distributing profits and retains sufficient earnings to invest back into the business or to buffer against market variability. For instance, in 2023, the DPS to EPS ratio is approximately 17.5% ($1.87 DPS / $10.6755 EPS) which is a conservative and healthy payout ratio. This trend is beneficial as it showcases Visa's ability to generate profit capable of covering and sustaining growing dividend payments over the years, reflecting financial health and long-term sustainability.

Dividends Well Covered by Cash Flow?

Explain the criterion for Visa (V) and why it is important to consider

Dividends Well Covered by Cash Flow is an essential criterion when evaluating the ability of Visa (V) to sustain its dividend payments. This metric measures the amount of dividend payouts relative to the company's free cash flow. Free cash flow is the cash that Visa is able to generate after laying out the money required to maintain or expand its asset base, and it is a critical indicator of financial health. Visa's trend in dividends covered by cash flow shows variability over the years. After a high coverage in 2008 (80.17%), there was wide fluctuation with especially low coverage ratios noted in 2010 and 2011 at approximately 15.02% and 12.02% respectively. However, the recent years from 2020 to 2023 show a more stable yet modest coverage ranging from 17.91% to 19.04%. Interpretation of this trend is more nuanced. On one hand, Visa has significantly increased its free cash flow, growing from $36 million in 2005 to nearly $19.70 billion by 2023. This strong growth in cash flow enhances Visa's ability to cover dividends even if the percentage coverage seems low. On the other hand, a lower percentage of free cash flow dedicated to dividends means that Visa retains a substantial portion for reinvestment or other operational needs, which might be seen as prudent fiscal management during uncertain economic conditions. Overall, while the recent coverage ratios are not exceptionally high, they appear sustainable given the substantial cash flow growth.

Stable Dividends Since the Company Began Paying Dividends?

Stability in dividend payments, where the dividend per share did not drop by more than 20% over the past two decades, is crucial for income-seeking investors.

Based on the provided data, Visa's dividend per share has generally shown a consistent upward trend from 2008 onwards. It is noteworthy that in 2017, the dividend per share decreased from 0.725 to 0.69, representing a drop of less than 5%. Despite this minor decline, the overall trend of dividend growth is intact, suggesting strong financial health and reliability, which is beneficial for income-focused investors.

Dividends Paid for Over 25 Years?

Dividends Paid for Over 25 Years

Review of Visa's (V) dividends over time demonstrates consistency in dividend payments since 2008, which is crucial for long-term investors since consistent dividends signal stable and predictable income. However, Visa has not paid dividends for over 25 years, limiting it under this criterion. This may be concerning for investors focusing exclusively on long-term dividend consistency, although Visa started its dividends strong and has rapidly increased its payouts since inception. In 2008, Visa began with $0.0525 per share, reaching $1.87 in 2023, almost a 36-fold increase, which demonstrates a strong commitment to rewarding shareholders.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases refer to a consistent strategy by the company to buy back its own shares from the market. This is important because it can indicate the company's confidence in its own financial health and growth prospects.

Visa (V) has demonstrated a reliable repurchasing strategy over the past two decades. The company has consistently bought back shares in multiple years, notably between 2008 and 2023, with the exception of a few years during this period. The notable increase in the number of shares in years such as 2010 (4384 million) and 2011 (4088 million) followed by a substantial decrease in subsequent years underscores Visa's commitment to shareholder value via repurchases. The average repurchase rate of -2.4923 indicates a strong tendency to reduce the number of outstanding shares, thereby increasing the earnings per share (EPS) for its investors. This is generally a positive signal for investors, suggesting that the company is confident in its cash flow and long-term profitability.