As I mentioned in my stock analysis on Visa (V), I was very interested in purchasing some shares even before yesterday's pullback. If you're wanting to invest in Visa you have to go into it knowing that it's going to give good dividend growth but it's much more of a total return investment. I've been wanting to add a few more high dividend growth companies to my portfolio and Visa fits the bill quite nicely, as well as my recent IBM purchase. I'm quite bullish on the company and expect to see lots of continued growth.
The price per share of Visa, and IBM as well, is really prohibitive to building large positions. While I know that stock splits don't change anything for the company or investors' valuations, I would like to see a 2:1 or 3:1 split just because it makes it easier to build 100 share positions for calls or easier to sell puts against. At current levels, a $175 strike put option would require $17,500 to purchase the shares if the option was executed. Ouch! Only 15% of the world's retail transactions are not transacted in cash, including 50% in the US and 99% in India. That's a lot of growth potential for the global leader in credit/debit card processing.
Let's get on to the details. I purchased 9 shares of Visa for $175.43 each. After commission my per share cost basis came to $176.31. Based on the current annual dividend of $1.32, these shares will provide only $11.88 in yearly dividends before reinvestment or future increases. Yep, that's a very small YOC of 0.75%. I expect the dividend growth to continue in the mid to high teens. I will get to receive the dividend payment in December which is also when Visa last increased the dividend, so my YOC should be getting a nice boost soon.
While my cost basis is 22.3% higher than my target entry price; it's still 1.3% less than the average valuation and 18.6% less than the high valuation. It's not a steal at these prices but I feel that it's around fair value and the growth potential as I mentioned above is pretty enormous. If Visa can grow it's earnings and dividends at the rates I assumed in my stock analysis I can expect 10% annual returns over the next 10 years, even with PE compressing to 15 from it's current 21.
This is going to be the last of my purchases until around mid-September which is kind of upsetting. I should have some excess capital to maybe make another purchase but I'm going to do my best to practice some patience. Although I'll pretty much be forced to since I don't have any free capital in my brokerage account currently. I don't like carrying such a low cash position and generally want to have 5% of my portfolio value in cash for special situations.
This increased my forward 12-month dividends to $2,901.05 which is 82.89% of the way towards my goal of $3,500 by the end of 2013. The last third of the year should see most of my free capital getting invested into my FI portfolio once again which is exciting.
I've updated my Portfolio page to reflect this addition.