Recent Buy: September 26th, 2014
Today I furthered the accumulation stage by initiating a position in Visa Inc. (V). I now own a piece of 18 completely different companies that consistently grow their dividends. I purchased 8 shares at $211.70 each and a $6.95 commission for a total of $1700.55 in new capital invested. The trailing P/E was about 24 and the forward P/E around 20, which compares favorably to the company’s 5 year average P/E of 29. My initial dividend yield is a low 0.76%, but also favorable compared to the 5 year average of 0.60%. This purchase adds just $12.80 to my 12-year forward dividends for a new total of $1,077.78, and a dividend raise is expected next month.
Visa is a heavyweight global electronic payments technology company that I use almost every time I buy something; I own Visa credit and debit cards. They dominate this industry, servicing about half of all credit card transactions, three quarters of debit card transactions, and they make a ton of money on service and processing fees. They’re always in the news: recently for announcing a new large technology center in India, partnering with Apple Pay, lingering lawsuits and more.
Visa became publicly traded recently in 2008, but has grown earnings exceptionally fast since then. Let’s take a look at a fast graphs that plots just the adjusted operating earnings growth (orange line) in that time frame.
I absolutely love seeing straight up growth like that. But since I love dividends even more, I’m very excited at how Visa has grown its dividends for five straight years at lightning speed right along with earnings and revenue. The five year average dividend growth rate is just over 31%! Visa still has a very low payout ratio of 18% with plenty of room for further increases. Take a look at the fast graph when we add dividends. The pink line is the dividend amount and payout ratio, while the light blue represents dividends paid out from earnings.
I always look for that pink line to keep inching upward, and this company impressively achieves that. Now to take a closer look at the historic performance results. Look at some of the crazy percentages of dividend increases!
My takeaway from this graph is that in 2009 someone could have started reinvesting dividends with my similar cost basis of $1,700 and yield of 0.7%, and already by 2013 the yield on cost would be 2.3% The position would have paid about $12 on the first year, but just 4 years later it’s almost $40. While past results can never predict the future, my young portfolio is a perfect place to put a dividend grower like this. I have a long time horizon and I think a lot about YOC over long periods of time when I make these lower yield purchases. I typically would never buy a stock with a trailing P/E as high as V’s; however, this is a very special company, growing at a rate that seems to justify the premium. Currently the valuation is right in line with the past. Check out how the current price (black line) tracks against the normal average P/E ratio (dark blue line).
What does the future hold? Obviously I feel there is a lot of growth. Here is a predication that fast graphs makes based on analyst and consensus information.
You can easily see why I’m excited to be a shareholder of a massive everyday company that is growing at an exceptional pace. I’m not alone either, check out some of these wonderful posts about Visa from blogs I read:
Tim McAleenan Jr. recently posted: Visa: Probably The Best Investment You Can Make Today.
What do you think of Visa? Have you initiated or added to any positions lately?