06-01-2014, 02:53 PM
I just spent a few minutes looking at Visa (V) after reading Tim McAleenan’s recent article arguing that it is “probably the best investment you can make today.” I am generally a fan of Tim’s work, and he seems a smart and thoughtful guy, so it strikes me as worth a closer look when he says something like that.
With a yield of 0.77 percent, this is not an income play by any stretch. They have been growing the dividend like gangbusters in recent years – more than 40 percent per year each of the last two years. Even so, because of very strong earnings growth, the payout ratio is still solidly under 20 percent. So they could continue to provide really great dividend growth in percentage terms going forward.
But by my math, they could increase the dividend by 20 percent each and every year for the coming decade, and you’d still only have a yield on cost of 3.96 percent in the year 2023. Hardly exciting for a dividend growth investor.
Tim’s focus with Visa is not as a dividend growth play, however. His premise seems to be that Visa is poised to have very strong earnings growth for years to come, and that the share price will naturally follow that right along. V is projected to earn around $9.00 per share in calendar 2014, and Tim states that:
By not “quibbling” over valuation, he means not worrying that V is trading at a P/E of about 24 (give or take a bit, depending on which earnings projections you use).
The article does not provide any support for the contention that Visa’s earnings growth is likely to continue along its current stellar path, but he also points to the fact that Visa “has no debt, no pension, no preferred stock, and low capital investments that lead to large growth.”
It sounds tempting to me, but I’ll have to do a lot more digging first before I stray too far from my DG wheelhouse into a trade like this. Anyone here own or follow V and have thoughts to share?
With a yield of 0.77 percent, this is not an income play by any stretch. They have been growing the dividend like gangbusters in recent years – more than 40 percent per year each of the last two years. Even so, because of very strong earnings growth, the payout ratio is still solidly under 20 percent. So they could continue to provide really great dividend growth in percentage terms going forward.
But by my math, they could increase the dividend by 20 percent each and every year for the coming decade, and you’d still only have a yield on cost of 3.96 percent in the year 2023. Hardly exciting for a dividend growth investor.
Tim’s focus with Visa is not as a dividend growth play, however. His premise seems to be that Visa is poised to have very strong earnings growth for years to come, and that the share price will naturally follow that right along. V is projected to earn around $9.00 per share in calendar 2014, and Tim states that:
Quote:Five years from now, there is a fair chance that Visa could be making $14-$15 per share in net profits. If you get the company and the growth rate, it doesn’t make sense to quibble over the valuation. You’d be looking back at today’s price in the low $200s wishing you would have chosen to strike when the fat pitch was crossing the plate.
By not “quibbling” over valuation, he means not worrying that V is trading at a P/E of about 24 (give or take a bit, depending on which earnings projections you use).
The article does not provide any support for the contention that Visa’s earnings growth is likely to continue along its current stellar path, but he also points to the fact that Visa “has no debt, no pension, no preferred stock, and low capital investments that lead to large growth.”
It sounds tempting to me, but I’ll have to do a lot more digging first before I stray too far from my DG wheelhouse into a trade like this. Anyone here own or follow V and have thoughts to share?