There seem to be no limits to Visa’s (NYSE: V) growth potential. The payment card giant’s revenues expanded by $690 million during the third quarter of 2016.
Visa began the quarter with $14.39 billion in revenues in June 2016, up from $13.54 billion in June 2016. That number grew to $15.08 billion in September 2016, an increase of $1.2 billion over September 2015, when Visa’s revenues came in at $13.88 billion.
These numbers indicate that Visa’s business is growing by around $1 billion a year. They also indicate that there might be few limits to the payment card industry. Visa’s payment ecosystem is vast and it is growing.
The Number of Visa Cards out there is staggering
There are more than half a billion Visa cards on earth right now. Statista reported that the total number of Visa credit and debit cards in the world is 566 million. There are 333 million Visa cards in the United States alone, making America the world’s largest market for such plastic.
Interestingly Visa’s US business is shrinking, there were 336 million Visa cards in America in fourth quarter 2015, and 333 million in first quarter 2016. The reason the number is lower, is probably all the Visa gift cards sold during the 2015 holiday season.
If these statistics are accurate it means there were around three million Visa gift cards sold during the 2016 holiday season. That sounds like a nice little revenue stream for Visa.
Is Visa Making Money?
Visa’s growth is impressive, but is the company making money? The answer to that vital question is yes, Visa business generates a lot of cash.
The data from ycharts demonstrates that Visa is a money-making machine. Here are some impressive numbers from September 30, 2016:
- $5.991 billion in net income.
- A quarterly profit margin of 45.32%!! Wow.
- A free cash flow of $2.311 billion.
- $65.04 billion in in assets
- $5.574 billion in cash from operations.
- $7.477 billion in cash form financing.
- $8.938 billion cash and short-term investments.
Visa is an Income Investment
Visa is definitely a value investment because it is a cash-rich company with a lot of float, but is it an income investment? The answer to that question is a definite yes.
Visa offered shareholders a dividend yield of .69% on November 4, 2016. Those shareholders are scheduled to receive a 16.5¢ dividend on November 16. The payout will mark a 2.5¢ increase over August 17 when Visa paid shareholders a 14¢ per share dividend.
Visa is a good dividend stock because it has the cash to cover that dividend. More importantly its income has started to grow again. Visa’s income grew by $419 million during third quarter rising from $5.572 billion in June to $5.991 billion in November. Although the company’s net income is still below the $6.857 billion it reached in March.
Beyond the dividend Visa investors enjoyed a 20.98% return on equity on September 30. That alone makes this stock worth having in your portfolio. Both the share value and the dividend are capable of significant growth along with the company’s business.
Can Visa’s Growth be Sustained?
My answer to the above question is yes, because of all the markets outside the United States. That includes fast-growing economies like India and China, which have vast populations and modernizing infrastructure.
Another huge opportunity is Africa where mobile phones will bring modern payment solutions to even the poorest regions. Here at home in the United States, there are vast opportunities in preloaded cards including gift cards and prepaid debit cards.
My prediction is that Visa has several years of sustained growth ahead of it. The market is far from saturated even in the United States.
The refusal of American retail giants; like Kroger (NYSE: KR) and Walmart (NYSE: WMT). to take Apple Pay demonstrates that cards will be the preferred electronic payment solution for the foreseeable. The ability to access credit card balances through Apple Pay shows us that even if wireless payments become widely accepted there will be a place for Visa.
Visa is stepping up its integration with wireless payment apps. Alphabet (NASDAQ: GOOG) announced a strategic partnership with Visa that will allow its users to pay online with Visa Checkout, on October 24, TechCrunch reported. Visa Checkout is Visa’s answer to Apple Pay.
Visa has a bright future and great growth potential so it definitely belongs in your portfolio. If I were making a list of modern day widows and orphans stocks (equities people on fixed incomes can depend upon for revenue) Visa would be close to the top.