Some companies simply don't prioritize dividends as part of their business model, and credit card network giant Visa is a great example of how a stock can perform well without emphasizing dividends. Since its IPO in 2008, Visa has done all the right things, raising its dividend every year. Yet an inconsequential yield has made the card giant a nonentity in the dividend investing space, even though rival MasterCard is equally stingy with its capital, and even longtime Dow component American Express doesn't manage to do much better on the dividend front. Let's look more closely at Visa to see whether the company will finally open its pocketbook to investors with a bigger dividend boost in 2016.
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Dividend Stats on Visa
Source: Yahoo! Finance. Last increase refers to ex-dividend date.
Is Visa a dividend embarrassment? It's been clear all along that Visa wasn't going to distinguish itself based on its dividends. Even at the time of its initial public offering, Visa's dividend yield amounted to less than 1%, and only in the depths of the financial crisis when Visa's stock plunged along with the rest of the market did the card giant's yield climb much above that.
That said, the pace of Visa's dividend growth has been robust. Until this year, annual increases were fairly consistently in a range of between 20% and 50%. By those standards, 2015's 17% rise was a bit of a disappointment, especially compared to the 45% boost that MasterCard gave its shareholders at the beginning of 2015. Even though American Express already has a yield more than double what Visa pays, it too gave investors a nice raise in 2015 of nearly 12%.
Part of the reason why Visa hasn't made a bigger effort to increase its dividend is that it has found other uses for its spare cash. The company is spending $23 billion in order to buy out former subsidiary Visa Europe, eliminating a key source of international competition and allowing Visa to boost its pricing while gaining some cost savings from merger-related synergies. The move consolidates Visa's stranglehold over the card market and is a major threat to the international strategies of MasterCard and American Express, both of which have benefited in the past from the divided front that Visa and Visa Europe provided.
In addition, Visa has moved aggressively toward promoting stock repurchase programs. In late 2014, the company said it would begin a new $5 billion buyback, and as of September, it had spent $2.9 billion to repurchase 44.1 million shares. The company re-upped its commitment with a fresh $5 billion for further repurchases this fall.
Nevertheless, it's hard to argue that Visa couldn't make room for more generous payouts to its shareholders. In its most recent quarter, Visa posted adjusted earnings of $0.62 per share. Even with an increased dividend, that works out to nearly five times what Visa pays its shareholders in dividends. Visa has ample room to increase its payout without having a major impact on other needs for its cash.
When will Visa's dividends rise again?Visa's recent dividend increase was par for the course for the card provider, which tends to make its annual dividend-hike announcements at roughly the same time each year in late October or early November at the conclusion of its fiscal year. Given its preference for stock buybacks and internal investment, investors shouldn't expect dramatic action on the dividend front, but they can probably count on Visa to deliver a typical boost late in 2016 that won't lift its yield by enough to make most dividend investors take notice.
The article Will Visa Inc. Raise Its Dividend in 2016? originally appeared on Fool.com.
Dan Caplinger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends MasterCard and Visa. The Motley Fool recommends American Express. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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