Dividend Increase | Visa (V)

Getting a pay raise while sitting on the couch?  Sign me up!  Thanks Visa for the dividend increase!

There's an old Chinese proverb that says "the best time to plant a tree was 20 years ago, the next best time is now".  The reason for this is that it takes time for a tree to grow and prosper and for you to start reaping its benefits.  Dividend growth investing is much the same way.  It takes consistent saving and investing as well as time and patience to let the power of dividend growth take hold.

That's why one of my favorite things is when one of the companies I own decides to pay out more in dividends.  You mean I get a pay raise just for owning a small piece of a company?  Not going and doing R&D for new products or technology.  Not selling any products.  Not managing any employees or inventory.  Not making sales calls.  All I had to do was have the foresight to invest some of my savings in excellent companies.  

On October 24th the Board of Directors at Visa (V) approved an increase to the quarterly dividend payment.  The dividend was increased from $0.25 up to $0.30 per share.  You know just a 20% increase!  Visa is a Dividend Contender with 12 consecutive years of dividend increases.  Shares currently yield 0.67% based on the new annualized payout.

The newly increased dividend will be payable on December 3rd to shareholders of record as of November 15th.

Since I own 40.761 shares of Visa in my FI Portfolio, this raise increased my forward 12-month dividends by $8.15.  This is the 8th dividend increase I've received from Visa since initiating a position in 2013.  Cumulatively, Visa's dividend has increased 264% since I purchased shares.

A full screen version of this chart can be found here.

Visa has now paid and increased dividends every year since going public in 2008.  Their dividend growth streak is pushed up to 12 years now with the dividend growing by over 1,000% already.

Of the 11 rolling 1-year periods starting in 2008, Visa's annual dividend growth has ranged from 17% to 109% with an average of 33% and a median of 21%.

Of the 9 rolling 3-year periods, annualized dividend growth has ranged from 18% to 47% with an average of 29% and a median of 26%.

The 1-, 3-, 5- and 10-year rolling dividend growth rates since 2008 can be found in the following chart.  

A full screen version of this chart can be found here.

For dividend yield theory I consider the fair value range to be the forward dividend yield +/- 10% compared to the 5 year moving average, the under/over value area to be to between 10%-20% deviation from the average and significant over/under value are greater than a 20% deviation from the average.

A full screen version of this chart can be found here.

Visa's 5-year moving average forward dividend yield is 0.69%.  The current yield of 0.67% suggests that shares are now in the fair value range.  The current dividend yield sits in the 29th percentile of all yields offered by shares of Visa.

I consider the fair value range based on dividend yield theory to be the 5 year moving average dividend yield +/- 10%.  Those levels correspond to share prices of $158 to $193.

Analysts expect Visa to have earnings of $6.26 for FY 2020, the current year, and $7.26 for FY 2021.  The current price of $177.85 has shares valued at 28.4x and 24.5x, respectively.  The EV/EBITDA ratio is rich too at 26.2x.

All of those are relatively high; however, keep in mind that revenues are expected to grow 11.0% with earnings growing 15.8% per year for the next 5 years.  

Visa's business is one of the best out there.  There's little capital requirements, high margins, high cash flow generation and built in inflation controls since they take a cut of the ticket price.  Plus being the largest network in place gives them an advantage of competitors and of course they don't take on the credit risk which is another big plus.

Wrap Up

This raise increased my forward dividends by $8.15 with me doing nothing.  That's right, absolutely nothing to contribute to their operations.  Based on my portfolio's current yield of 2.96% this raise is like I invested an extra $275 in capital.  Except that I didn't!  One of the companies I own just decided to send more cash my way.  

That's how you can eventually reach the crossover point where your dividends received exceed your expenses.  That's DIVIDEND GROWTH INVESTING AT WORK!  The beauty of the dividend growth investing strategy is that you build up your dividends through fresh capital investment as well dividend increases from the companies you own.

Thus far in 2019 I've received 42 raises from 37 of the 54 companies in my FI Portfolio.  Combined the dividend increases have boosted my forward 12-month dividends by $300.08.

My FI Portfolio's forward-12 month dividends climbed to $7,628.71.  Including my FolioFirst portfolio's forward dividends of $101.14 brings my total taxable accounts dividends to $7,729.85.  My Roth IRA's forward 12-month dividends increased to $619.08.  My Rollover IRA's forward dividends remain at $2,262.58.  Across all accounts I can expect to receive $10,611.51 in dividends over the next year.

I've also started compiling dividend data on many of the companies that I own or would like to own.  Visa's can be found here which includes the dividend history (as far back as I can find without spending hours hunting it down), rolling dividend growth rates and dividend yield theory.  To see other companies that I've already gathered the data on you can check out the Dividend Companies page.  Check it out and let me know what you think.

Do you own shares of Visa?  Was that 20% raise just right?

Please share your thoughts below.