Companies like Visa (NYSE:V) that combine technology and financial services are undoubtedly rife with potential at this time.
Electronic payments only surpassed cash payments on a global basis a few years ago, which means there is still plenty of room for growth for businesses that are involved in financial technology. Investors have widely been focusing on companies like PayPal (NASDAQ:PYPL) and Square (NYSE:SQ) for exposure to the payments space, but an argument can be made that Visa is the best company in the industry and a stock that should be getting more love.
The truth is that Visa deserves more credit given its impressive market share, strong margins, and the stock’s relative strength during the recent volatility. While it’s a company that has dealt with negative impacts caused by the pandemic, several things are working in Visa’s favor at this time that make it a great option for investors to consider. Here are a few reasons why the largest payment processor in the world belongs in your portfolio.
Strong Established Business With Room for Growth
It’s pretty rare to find a company that already has a well-established business and also offers significant growth prospects, but that is exactly the case with Visa. As a company that connects consumers, businesses, banks, and governments in over 200 countries around the world, the global payment network that Visa has built is nothing short of remarkable.
The company’s core products, like credit, debit, and prepaid cards, are used to make transactions with digital currency; Visa generates revenue from fees on each transaction. The company’s processing network, VisaNet, processes roughly 500 million transactions every day, and there are over 54 million merchant locations in the company’s network at this time.
There’s certainly a lot to like about Visa’s existing business, even though revenue has taken a hit due to the pandemic. However, investors should also be attracted to the company’s growth prospects in an increasingly tech-savvy world.
Did you know that 85% of the world’s transactions are still done in cash? Electronic and mobile payments are set to grow at a rapid pace over the next decade, which means that big things are on the horizon for a company like Visa thanks to its dominant market position. Mobile banking is quickly becoming the new normal, and consumers are increasingly choosing to shop via e-commerce platforms. These are trends that align perfectly with Visa’s strategy, and since its business is highly scalable it’s hard to imagine a future where the company isn’t delivering strong earnings growth.
Multiple Positive Catalysts
We mentioned the overall growth in electronic payments, which is an intriguing long-term catalyst that should help Visa continue to grow its business over the years. However, a few other positive catalysts are working in the company’s favor in the near-term that should not be overlooked.
First, you have US President Joseph Biden’s $1.9 trillion stimulus bill that was approved in the Senate last weekend. It’s only a matter of time before the bill is passed, which means that a massive amount of cash is about to be added to the financial system. The stimulus bill is big news for Visa’s business because increased consumer spending leads to more revenue for the company. With $1400 stimulus checks on the way to millions of Americans soon, this looks to be a strong catalyst for the stock going forward.
There’s also the fact that COVID-19 cases are on the decline. With more vaccines being distributed every day, the company’s earnings should get a boost as people gain more confidence to head back out in public and spend money.
Travel volumes are also going to improve this year, which should be viewed as another positive since Visa is a common payment option for most travelers.
Finally, the company announced that it plans to increase swipe fees in April that should result in a long-term boost to the company’s profits.
History Of Returning Cash To Shareholders
Another reason why Visa is a strong stock to own over the long-term is the fact that it’s a company with a long history of returning cash to shareholders. The company has increased its dividend payment for 12 consecutive years and has a 5-year dividend growth rate of over 20%. Although the stock only has a 0.58% dividend yield, the company’s reliable business model and consistent year-over-year share price gains make it a solid option for dividend investors.
Visa also has a share buyback program that long-term investors should be attracted to. The company announced in January that the board of directors has authorized a new $8 billion share repurchase program that brings the total funds available for share repurchases to over $11 billion.
The bottom line here is that Visa is a company committed to rewarding its shareholders without sacrificing growth opportunities, which is another reason why it’s one of the strongest options in the payments space.