Major credit card companies are certainly a good place for dividend investors recently. American Express (NYSE: AXP), MasterCard (NYSE: MA) and Visa (NYSE: V) have all rewarded shareholders with rapidly growing dividends for years. Now Visa is demonstrating its propensity for dividend increases once again, serving investors up a handsome 18% dividend increase.
For investors interested in Visa as a dividend stock, here's a close look at the company's most recent dividend, as well as why more double-digit dividend increases are likely in the years to come.
Visa's 18% dividend increase
Visa announced its 18% dividend increase last Wednesday, declaring a quarterly dividend of $0.195 per share, payable on Dec. 5.
Making a strong case for both Visa's commitment to dividend increases and its ability to consistently increase its dividend by strong rates, Visa also increased its dividend by 18% last year. In fact, Visa's dividend nearly doubled over the past four years, climbing 95%.
Visa's 18% dividend increase gives it stronger dividend growth than its peers. MasterCard's most recent annual dividend increase, which was announced in December of last year, marked a 16% increase over its previous dividend. American Express announced a 9% dividend increase last month.
To be fair, Visa does sport a rather low dividend yield. Visa's dividend yield is just 0.7% -- well below the average dividend yield of stocks in the S&P 500 of 2%. It's notably also lower than American Express' dividend yield of 1.5% but above Mastercard's dividend yield of 0.6%.
Income investors interested in Visa as a dividend stock are likely just as interested in the sustainability and growth potential of Visa's dividend as they are interested in its recent growth.
To analyze the dividend's sustainability and growth potential, investors can turn to Visa's payout ratio, or the percentage of its earnings it is paying out in dividends. Paying out just 24% of its earnings in dividends, Visa's dividend looks both sustainable and poised for growth. With a payout ratio this low, there's plenty of breathing room for increases -- even if earnings take a hit. For comparison, American Express has paid out 26% of its trailing-12-month earnings while Mastercard paid out 21% of its earnings.
Another important aspect of Visa's business to consider when assessing its potential as a dividend stock is its recent ability to grow earnings. Fortunately, Visa has benefited from strong earnings growth. Excluding special items, net income and earnings per share both increased 26% year-over-year in the company's most recent quarter (Visa's third fiscal quarter of 2017). This meaningful earnings growth was driven by "strong growth in payments volume, cross-border volume, and processed transactions," management explained in Visa's third-quarter press release.
Zooming out for a broader picture of Visa's finances, the company said in its third-quarter earnings release that it expects solid growth for the entire fiscal year of 2017. Management guided for year over year GAAP earnings-per-share growth in the "low double-digits" and about 20% growth on an adjusted basis.
Considering Visa's just-announced 18% dividend increase, consistent track record of strong dividend increases, low payout ratio, and robust earnings growth, Visa's dividend will likely continue to increase at double-digit rates in the years ahead.
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Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Mastercard and Visa. The Motley Fool recommends American Express. The Motley Fool has a disclosure policy.