Visa (NYSE: V) is not only the largest payment processor around, it has also become a “widows and orphans stock.”
For those of you who are not up on old school investment slang; a widows and orphans stock is an equity that’s such a reliable money maker that even the most vulnerable can rely on it for income. That means widows and orphans or retirees can safely put it in their portfolios.
The latest set of financial numbers, those for December 31, 2016, indicates that Visa easily meets these criteria. The credit card brand has demonstrated so much growth and cash flow it is both a value investment and a classic widows and orphans stock.
Visa’s Incredible Money Machine
The numbers show that Visa has become an incredible money machine that also generates a lot of float. Some of the highlights of Visa’s finances for fourth quarter 2016 include:
- $6.12 billion in net income
- A profit margin of 46.4%
- A free cash flow of $2.337 billion.
- Cash and short term investments of $9.521 billion
- $6.103 billion generated by cash from operations.
- Total assets of $63.37 billion.
One number that really impressed me was the net income. It is actually slightly larger than the cash from operations figure. Visa’s income actually slightly exceeds the amount of cash it is running through the till.
What’s almost as impressive is the fact that Visa’s net income equals more than one third of its revenues. Visa reported revenues of $15.98 billion on December 31, 2016.
Visa is Growing Fast
Equally impressive is Visa’s growth rate. Its revenues expanded by $1.93 billion during 2016 rising from $14.06 billion in December 2015 to $15.98 billion a year later.
An even better figure was Visa’s assets they increased by $8.39 billion in 2016, rising from $54.98 billion to $63.37 billion. That gives the company a lot of float that helps generate all the cash and short-term investments.
The amount of cash and short-term investments at Visa did drop by half; falling from $21.34 billion in December 2015 to $9.521 billion in December 2016. That’s a drop of $11.819 billion but with $9.521 billion in the bank we can certainly live with it too.
Although the net income fell in 2016, dropping from $6.7 billion in December 2015 to $6.12 billion in fourth quarter 2016. That’s a drop of $580 million but with $6.12 billion in income we can certainly live with it.
The fall in net income can probably be attributed to a drop in cash from operations. Visa reported $6.802 billion in cash from operations in December 2015 and $6.103 billion a year later. That made for a drop of more than 10% or $699 million.
Why Visa is a Widows and Orphans Stock
Strangely enough these numbers prove that Visa is a widows and orphans stock. They demonstrate that it can make a lot of money even with a significant drop in income and cash flow.
More importantly Visa is still paying off for investors it provided an earnings per share number of 2.53 and a return on equity of 22.03% on December 31, 2016. The shareholders are scheduled to enjoy a dividend of 16.5¢ on February 15, 2017 a nice Valentine’s Day present.
That dividend has been rising steadily for some time, it increased by 1.5¢ in 2016 rising from 14¢ to 15¢. The increase in 2015 was slightly lager, the Visa dividend grew from 12¢ to 14¢ a 2¢ rise. That compares favorably with a 1.7¢ increase in 2014 when it went from 8.3¢ to 10¢ and in 2012 when it rose from 5.5¢ to 8.3¢.
These numbers; provided by ycharts, indicate that Visa’s dividend has more than doubled in just five years. That indicates a true widows and orphans stock, one that pays a steadily growing dividend to offset inflation.
Visa’s Fantastic Business
There is a final reason why Visa is a widows and orphan’s stock, it has a fantastic business.
There were 2.4 billion Visa cards in the world in 2014, according to the 2015 Visa Fact Sheet. Those cards were accepted at 14,100 financial institutions and 2.3 million ATMs in 200 countries.
Visa processed $7.4 trillion in transactions globally and $4.8 trillion worth of transactions in the United States alone in 2014, The Fact Sheet indicates.
All this provides Visa with a fantastic business that’s capable of generating an incredible amount of float. It also creates one of those fool proof businesses that even an idiot can run.
Hundreds of millions of people pay with plastic every day and many of them use Visa. Even if many of those people switch to payment apps such as Apple Pay they will still be using their Visa balances to pay that also generates money for Visa. Every time swipes the card or pushes the payment app, Visa makes a little money.
If you are looking for a modern day widows and orphans stock that can be depended upon to generate money for decades to come Visa might be it. This payment processor might just have the perfect business for the 21st Century.