Recent Buy

buyWell, opportunities remain a bit limited right now, but vigilance is a character trait of mine.

I remain committed to growing my dividend income on a regular basis, and a major contributing factor is obviously the fresh capital I regularly put to work in the most attractive opportunities I can find.

This most recent purchase was me looking for the best possible quality, while not necessarily shooting for the greatest possible value. This is a bit of a growth stock, which is an unusual investment for me. However, I would never purchase a stock with value if there weren’t possibilities for growth; likewise, I wouldn’t purchase a stock with excellent growth prospects if there weren’t some value there. I think growth and value should go hand in hand, albeit to varying degrees depending on what you’re looking for in a company.

I purchased 5 shares of Visa Inc. (V) on 7/9/14 for $215.30 per share.

As I noted on my most recent watch list article, Visa was tops on my list for capital allocation this month. I wavered a bit as I continued to follow some other interesting opportunities, and the stock price shot up a bit on me in the meanwhile. But a couple bucks isn’t something I’m worried about if I’m truly in this for the next decade or three.

Overview

Visa Inc. is a global payments processing technology company, connecting consumers, businesses, banks, and governments in more than 200 countries by enabling them to use digital currency instead of cash and checks. They provide a fast, secure, and reliable digital payments network. They are the world’s largest such payments technology company.

Visa primarily generates revenue from credit and debit card service fees, data processing fees, and international transaction fees. The company operates under just one segment: Payment Services.

Fundamentals

Visa’s quantitative fundamentals are just impressive, no matter how you slice it. The company went public in 2008, so I’ll be working with a shorter base than usual. I’ll be showing company performance over the last five years. The fiscal year ends September 30.

Revenue is up from $6.911 billion in FY 2009 to $11.778 billion in FY 2013. That’s a compound annual growth rate of 14.26%, which is very impressive.

Earnings per share has grown from $3.10 to $7.59 over this same time period, which is a CAGR of 25.09%. That’s just stunning. Furthermore, that kind of growth may very well continue from here, as EPS is expected to grow at a compounded rate of 18% over the next three years, according to S&P Capital IQ.

Visa processed 81.6 billion total transactions in calender year 2012. That compares to 46.3 billion for Mastercard Inc. (MA), and 5.9 billion for American Express Company (AXP). Payments volume increased to $4.3 trillion in 2013, up from $3.9 trillion in 2012. That’s an increase of 10.3% year over year. This bodes well for the company, as the company earns a small slice of revenue from each transaction. Subsequently, increasing transaction volume increases Visa’s revenue.

Dividend growth is of course one of my primary concerns as a dividend growth investor, and Visa has grown their dividend regularly and incredibly since going public. The company has increased the dividend for seven consecutive years, and has a five-year dividend growth rate of 45.9%. I don’t expect this kind of blockbuster dividend growth to continue forever, but double-digit raises are extremely likely for the foreseeable future. And that’s because the payout ratio, at just 18.9%, is very low, and earnings are increasing at a rapid rate.

However, the one major drawback to this investment is the low yield. Shares in V yield just 0.74%, which is much lower than I like. I typically don’t even consider investments with yield that low, but as I’ve noted before I’d like a little more exposure to Stage 3 stocks now that my portfolio has matured a bit. I’m basically counting on pretty aggressive dividend growth with this investment.

The yield is a bit low with this stock because Visa management has been open about their preference to buying back shares as a means to providing value to shareholders and generating a strong return. The company has purchased 151 million shares since the IPO, which amounts to about 20% of shares outstanding. I typically prefer a company with a preference to growing dividends over buybacks, but I’m making an exception here due to Visa’s especially attractive business model.

This company just has so much to like. The balance sheet is flawless, with no long-term debt to speak of.

And the general profitability is fantastic. The company sports fantastic profit margins because there isn’t much cost to run a global payments network. Once the infrastructure is in place, Visa simply sits back and collects the income. As such, the overhead tends to be quite low, and Visa has extremely strong free cash flow.

For FY 2013, operating margin ended at an eye-popping 61%. Furthermore, net margin has averaged 34.68% over the last five years. The profitability here is really astounding. Return on equity, meanwhile, has averaged 12.65% over the last five years.

Qualitative Aspects

The story here is really strong. Visa is the world’s largest digital payment processor. So you have to like this company’s chances going forward. Mobile payments and e-commerce are both increasing every single day. Whereas mobile payments are seen as a threat, they also open up opportunity. Visa notes that it takes time and investment to build out the infrastructure for a payment network in certain emerging markets, and additional time and investment to get the cards in the hands of millions or billions of consumers. Since mobile phones are becoming increasingly popular, Visa simply needs to connect these devices to their network. This allows them to digitize currency and remain a leader in digital payments.

International transactions are still a huge growth opportunity for Visa: For the second quarter of 2014, the company reported $3.163 billion in revenue. But the US accounted for $1.683 billion of this revenue, or 53.2%. So there’s still a lot of growth ahead in other key markets that will drive Visa’s growth well into the future. This growth will be driven by a desire to secure payments, go cashless, and make it easy for businesses to conduct business and get paid. And these transitions will occur as markets around the world develop and mature.

The economies of scale are huge, and are especially effective for Visa because their overhead is so low. Another major economic advantage is the fact that there are switching costs involved. Once you have your credit cards in hand, you’re likely to continue using them over and over again. For instance, I have some of my bills set up on auto-pay. The odds of me switching credit cards is low since that would involve switching all of my billing around.

Risks

There are risks with any investment, and Visa is of course no different. The primary risks revolve around regulation, litigation, and competition. The company specifically maintains an escrow account for litigation, and has settled numerous lawsuits over the past few years specifically relating to processing fees. In addition, the passing of the Dodd-Frank financial reform bill put into place certain restrictions regarding debit card interchange fees.

Competition is primarily in the form of competing digital payment processors, but mobile payment processing could bring about competition that is currently unknown.

And regulation is always a potential risk for any financial institutions, as the recent issues with deposit requirements in Russia have shown. However, major companies like Visa maintain clout due to their infrastructure and global standard.

One thing I love about Visa is that their financial risk is somewhat low due to the fact that they take on no lending risk. They simply process digital payments, while the issuing bank takes on the financial risk. However, Visa has noted that in certain circumstances they can face financial risk due to potential situations that would require them to indemnify issuers and acquirers.

Valuation

Visa shares aren’t particularly cheap, but I think they’re very reasonable considering the anticipated growth. The price-to-earnings ratio is at 25.4, which is a bit higher than my usual limit of 20. However, I don’t think this is stretching too far considering the future prospects. I actually looked at Visa when it was trading at $100, and the valuation and yield was very similar. I obviously regret passing, and I decided to not make the same mistake twice.

I also valued shares using a two-stage dividend discount model analysis to account for the low yield and high growth. I used a 10% discount rate, a 20% growth rate for years 1-10, and an 8% terminal rate. This gives me a fair value on shares of $232.89. So you could say that V shares are more or less fairly valued right now, assuming they’re able to grow at that rate. However, a lower terminal rate means shares are overvalued here, so I’m dipping my toes in lightly with a rather small position. I’m certainly interested in adding to this position over time, however, depending on circumstances including how fast the dividend grows.

I just  think there’s a ton of opportunity here for Visa to grow and expand, especially as e-commerce grows. And growth in profit translates into dividend growth, which makes me a happy investor. And one thing you’ll notice in my portfolio is that I love winners. And Visa is the world’s largest at what it does, and maintains huge profit margins and financial flexibility.

Conclusion

This purchase adds just $8.00 to my annual dividend income based on the current quarterly payout of $0.40 per share. However, a large dividend raise in the fall could quickly change this figure.

My portfolio now holds 48 positions, as this was a new investment for me.

I’m going to include current analyst valuation opinions below, as I use these to concentrate my reasonable valuation estimate:

Morningstar rates V as a 3/5 star value, with a fair value estimate of $223.00.

S&P Capital IQ rates V as a 3/5 star hold, with a fair value calculation of $228.10.

I’ll update my Freedom Fund in early August to reflect this recent purchase.

Full Disclosure: Long V.

How about you? A fan of V at these prices? Think this will be a good long-term investment?

Thanks for reading.

Photo Credit: Stuart Miles/FreeDigitalPhotos.net

Comments

  1. Jos says

    Great pick, Jason. I initiated V around mid-June. I like the company for its huge growth potential, its debt free balance sheet and its world leader position. They have a big moat. No other company will stand up tomorrow and also show such an international payment network. From a leader I expect they soon pick up with the new trends such as mobile payment. Yield could be better. Maybe their vision about this will change in the future. In the meantime I’m very happy with their growth.

    Thanks for the comprehensive post.
    Enjoy your weekend.

    • says

      Jos,

      Thanks for stopping by!

      I agree with your thesis. The growth potential is just huge, and the balance sheet is flawless. And their moat is pretty wide considering the competitive advantages they already have in place. It’s hard to find such a large, stable company with this much growth potential. I’m excited. :)

      Hope you’re having a great weekend.

      Best regards.

      • late bloomer says

        It seems such a short time ago when Visa IPO’d, I wanted to invest in it then, didn’t have the funds at that time……..but it’s good to see it’s still a good value……..good job Jason……:)

        • says

          late bloomer,

          I didn’t have the funds either at the IPO. In fact, I didn’t know anything about investing back then. But I do wish I could go back to when V was trading below $100. I was interested in buying but passed. I just wasn’t ready for a stock with such low yield, but I think my dividend income is healthy enough now to sustain a position like this. We’ll see how it goes!

          Best wishes.

          • late bloomer says

            it ipo’d in 08′ around $50-60, and dipped down into the $40’s not long after ….yep…….woulda, shoulda, and coulda story….but here’s a true story of mine:
            In 2001 we had 100K to invest……..and if I woulda bought Apple at $1.50…….well you can guess the rest….woulda been sittin pretty! Instead, sadly, and not knowing better, we invested in something and lost it all……….we were scammed because my husband and I didn’t know anything about investing……..big lesson for us…..:P

            • says

              late bloomer,

              Terribly sorry to hear about that. I’m doing my best so spread the education and help DIY investors. And I’ve learned a lot myself along the way. I hate hearing stories like that because building real, sustainable wealth and passive income isn’t difficult.

              I’ve certainly made my mistakes, most notably of which was wasting away an inheritance when I turned 21. You live and learn!

              I’m glad you’re here now, though. And you’re building your wealth in great fashion. :)

              Best regards.

              • late bloomer says

                Yes, losing money can be a good lesson. It was an expensive one though, but it did prompt me to learn about real investing. As far as being “here” now, though, I’m still in cash……..planning to get started with a portfolio soon, watching you is helping me to get motivated….Thanks again!

  2. x_markus_x says

    Hello DM,

    I purchased my first tranche of VISA two days ago. I intend to purchase 1 or 2 tranches more and then hopefully hold the stock until V changed from a low-yielding growth-stock to a boring “dividend aristocrat”. :)

    Like you said…as soon as a portfolio matures with “boring” stocks like in my case BAT, KO, Unilever, Munich RE, MSFT etc. it is time to add some flavour. :) Good luck with your (our) investment! :)

    • says

      x_markus_x

      I’m with you. I’m hoping V eventually becomes a dividend powerhouse. They certainly have the potential! :)

      Good luck to you as well with your (our) investment.

      Cheers!

  3. Mike says

    Hi DM,

    Interesting buy, but I’m not sure that I agree with it, from the standpoint of dividend investing. I did read your analysis of V in a previous article, and it made some very good points, but still…this purchase seems to violate some principles of entry points for dividend and dividend growth stocks. Mainly, the yield is only 0.75%. It’s true that the payout ratio is low and the growth is high, but if you think about it, if V had a yield of 2.5% (which is generally the rule of thumb minimum), it’s payout ratio would be 60%, which is quite high for only a 2.5% yield.

    I’m not saying that this a bad company (in fact, it’s quite the opposite), but only from the standpoint of dividend investing, this seems like a much more speculative move. Maybe if you’re looking at the 30+ year time frame, then you can make a case here, but even then, I think that there may be better “Stage 3″ stocks out there. After all, putting down more than $1,000 and getting an annual payout of $8 is a little hard to swallow, even with the huge growth potential ahead. Even if future dividend increases were the same as the last one (21%), it will still take you 7 years just to hit 2.5% yield on cost!

    Regards,

    Mike

    • Dave says

      Spot on Mike. If the dividend was a good yield then the payout ratio would very high With his thought process, he should of added to IBM which he is underwater on to average down. 48 positions in a sub $175K portfolio….wow.

      • Brian says

        Agreed. I hope our friend is not caught up in adding stocks to his portfolio just to report on a new buy. I think adding to a few existing positions make more sense. If you liked a stock, and it’s dividend before, why not add to it. Over diversification is just as bad as not being diversified. IMHO

        • says

          Brian,

          I don’t buy stocks with consideration to blog posts. Furthermore, I’d be reporting a “Recent Buy” whether the stock was a new position or not.

          And there aren’t many stocks in my portfolio trading near my cost basis right now. IBM is one of the few, and that was the stock I was wavering over as I spoke above in the post. But in the end I just felt better about V, between the two. GE was also high on my list, and I may buy more next month. We’ll see.

          Best regards.

    • JP says

      I was feeling the same while reading this post. I feel like Jason is getting more and more speculative. Not on a big scale, but slowly getting there. The recent sale on LO is also one with speculative reasons.

      I also think VISA is a great buy, not from a dividend investors point of view though.

      • says

        JP,

        I honestly don’t feel V is “speculative”, though not particularly a great dividend growth stock right now. But if you look back at KO, MCD and other stocks you’ll see they had the same characteristics a decade or more ago. Generally low yield with low payout ratios. It was through aggressive dividend growth and slowing earnings growth that they got to where they’re at now. But if you can catch that rocket early you’ll catch some of the early growth with more of the income later. It’s a bit of a gamble on the dividend growth, though. We’ll see.

        Best wishes!

        • Monty says

          If I’m not mistaken, I think KO was something like this when Buffett pulled the trigger. I think Visa was a good buy from a long term perspective. I would be worried about a disruptor tech companies, since payment processing is a bit technology based. IBM is working on a non cashier checkout system etc. I would be a tad worried that Visa could have issues later. On the other side of the coin, most of the entire third world doesn’t use credit cards much currently. This could be a monsterous growth area for visa. Good purchase IMO.

          • says

            Monty,

            That’s a great point there. I was pointing out in earlier comments that most of the dividend stalwarts we invest in today (like KO) didn’t always look like they do today. Many traded at higher valuations and lower yield. Through a natural process of consistently rising dividends and slowing growth you see them where they’re at today. But if you can ride that wave to that eventual point you should do well. MCD certainly wasn’t paying a 3%+ yield 10 years ago. So there’s obviously a little bird in the hand vs. two in the bush going on here, but I think my portfolio has room for something like this right now. SBUX, NKE, and DIS are a few other solid candidates for this.

            And I agree with you in regards to the risks and potential reward. Mobile payments could be a huge disruption, or a huge opportunity. Depends on how V responds to these platforms and the technology they can provide.

            Best regards.

            • says

              DM,

              I agree with you regarding SBUX, NKE, and DIS, but SBUX and NKE are a little rich for my blood right now. Waiting for a pullback, if there will be one with these stocks. Another one I have been following closely is BA (though the yield is considerably higher than the above three).

              • says

                andyschabo,

                I’m with you in terms of the valuation regarding those particular companies. That’s probably why I chose V. I just felt the value, growth, and potential of Visa offered me the best play in this space right now. But that could change in the future. However, I don’t really have a ton of room for other companies like this. So I’ll have to be very careful with my allocation.

                I’ve never actually followed BA, but I also don’t have room for it with other companies like GE and RTN in my portfolio. One thing that’s interesting is that even with almost 50 companies in my portfolio I still see a lot of businesses I’d love to own a chunk of. Companies like SBUX, NKE, and DIS as mentioned above. But more so companies like NSRGY, UL, MMM, UTX, GIS, and BDX to name but just a few. Crazy stuff.

                Thanks for stopping by!

                Cheers.

                • says

                  I like those companies you listed, especially UL, MMM, and GIS. You could pull a Peter Lynch and invest in 1,400 stocks. The number of quality companies that keep coming across my screen makes me believe more and more that Lynch is much smarter than I originally thought.

                  Oh and before I forget, great first full day for V, right? V is a pretty volatile day to day stock, but it never hurts to see a +$4.00 day.

                  • says

                    andyschabo,

                    Whew. Managing 1,400 stocks is probably not a job I’d like. Or maybe I would. I think Lynch did quite well for himself. :)

                    Although, if I remember correctly he quit managing the fund because he could recall all these stock tickers off the top of his head, but not his children’s birthdays. I guess it kind of consumes you.

                    I’ll probably go over 50 stocks before I’m done, but I don’t want to go too far over.

                    V has been on a run lately. I wish I would have just went ahead and pulled the trigger when it was around $208 because I was already pretty convinced that was going to be a buy this month. Ah, well. Won’t really matter too much a decade or so from now.

                    Cheers!

                • says

                  BA is a great company. They’re cleaning house right now at the Farnborough Airshow. Tons of new orders are rolling in, and they have a mammoth backlog. There is huge growth in the commercial airline market and BA is going to be supplying a huge chunk of the airplanes needed for commercial aviation’s expansion as the emerging markets develop.

                  UTX is also an outstanding company. I took the plunge with them a few days ago. I see them as another play on commercial aviation, as well as the defense sector which I’m a huge fan of as well, as UTX supplies engines (Pratt & Whitney, as well as a JV with GE) and parts to pretty much anybody who builds commercial and military aircraft. They even supply some of the smaller players in the sector like Bombardier. I also see UTX as a way to play Airbus for those of us who don’t want to trade pink sheets, as they’re a very significant parts supplier for Airbus.

                  You should look into the long term growth prospects in commercial aviation. You’ll probably love what you see.

                  • says

                    Seth,

                    Well, I do have some aviation/aerospace exposure. Namely, GD and GE. But I am a big fan of UTX as well. I missed out on UTX early on, and there’s a few other companies I missed out on as well. I hope to maybe rectify that at some point but I’m a happy GE shareholder right now.

                    Gotta love United’s dividend growth record. Very strong. I think you’ll do very well there over the long haul.

                    Best regards!
                    .

    • says

      Mike,

      You make some great points there. This one is a bit speculative, though only as speculative as a $100 billion+ company with 20%+ growth potential can be.

      But as a dividend growth play, there’s a lot of questions. Namely, how fast exactly will the dividend grow and will the buybacks slow down in favor for dividends?

      But these questions are why I’m starting out with a small position and I’ll be looking to add only if we see pretty strong dividend raises from here. And the rest of the portfolio has a pretty strong yield/growth mix, so this just provides a little extra growth potential there. Furthermore, plays like this will be somewhat limited for me as I still have a need for current income to reinvest.

      We’ll see how it shakes out! :)

      Thanks for stopping by!

      Best wishes.

  4. says

    I really like V. Not only is the business model great but even better is that there’s essentially no capex and I’m pretty sure they have no debt or at least pretty much no debt on their books. That let’s almost everything drop down to the bottom line as profit and also dividends and buybacks. I’d also like to see the ratio tilt a bit heavier towards dividends than buybacks but V is a long term holding that I feel is going to prove very fruitful for just about any owners. I’ve been looking to add to my position but of course then the shares spiked from around the $207 level. Might have to make another purchase around these levels because I really like the company.

    • says

      JC,

      I’m with you. There’s a lot to like. The only thing I really don’t like is the yield and the dividend/buyback mix. If they’re able to grow EPS at the predicted rate, then the dividend should grow even faster. We’ll see. I don’t want to make V a big position because of my overall goals, but I feel like I had a little room in the portfolio for what may amount to a fantastic holding over the next 10-20 years.

      Thanks for stopping by!

      Cheers.

      • says

        I wouldn’t go too heavy into V because I don’t think the current yield will ever be that enticing, at least not for a considerable time, maybe around 10 years. There’s just too much growth ahead for V. Especially given your, and my, need/want for current income as well. This is more of a play for the 10 or 20+ year mark where the DG has probably slowed to the 5-10% level. If you look back at all of the aristocrats I highly doubt that most of them were consistently yielding 2.5%+ even just 10 years ago. I’m working on a stock analysis of JNJ and its yield didn’t consistently get above the 2.5% mark until 2006. Well since 2001 I haven’t looked at data from before then. I don’t think you’ll find many detractors about the quality of JNJ.

    • says

      David Tan,

      There is no comparison, at least not as of yet. MA held their dividend static for a few years there. We’ll have to see if they have a commitment to growing the dividend going forward, but V has raised the dividend like clockwork since the IPO.

      Cheers!

  5. says

    Great post Jason – am enjoying your musings on investments, financial independence and much more. The next quarterly earnings from Visa is going to be fascinating – good luck with your investment. For what it is worth – as I detail here http://financialorbit.blogspot.com/2014/06/visa-review-of-prospects-and-level-to.html – I am personally looking for the sub $200 level, a level we briefly saw a few months ago, to initiate a position. Brilliant theme as you highlight just, for me, a question of specific timing and level. I am sure you would be using a sub $200 level to acquire more.

    Good luck with everything – and keep these great posts coming.

    • says

      Chris Bailey,

      I wouldn’t mind acquiring more below $200 if the next dividend raise is particularly impressive and the stock pulls back at the same time. However, I also don’t plan to make V a really big position. I love the business model and growth potential, so I wanted a little exposure there. But I still have a need for current income as well. But I am excited to see how the rest of the year shakes out for V, and especially how the dividend looks at the end of the year.

      Thanks for the support! And I hope we get that sub-$200 level so you can join me. :)

      Best wishes.

  6. says

    DM!

    Nice work – I know how hard it is sometimes to pull a trigger on a “higher” priced stock – but the valuations on Visa do it justice. The revenue stream will keep getting stronger, market positions are getting bigger in the international markets and our global economy is thriving off of the Visa/Mastercard/AmericanExpress/Discover etc. Also – you’ll start laughing once those dividend increases start rolling in – get excited for fall! If 2014 dividend increases amongst other companies have any indication (most have been above an average) – then I think we have a great increase for us on the horizon. Welcome to the V club DM, let the dividends keep on increasing. Congrats on the purchase!

    -Lanny

    • says

      Lanny,

      Thanks so much!

      The P/E ratio looks a bit high, but when you see how PG and KO are priced in the same vicinity with MUCH lower growth rates, you can see the attractiveness here. In addition, other dividend stalwarts like CL and ADP are actually priced higher than V. That’s just crazy to me, especially considering the growth profile of these businesses.

      The yield, however, tempers my enthusiasm. I really wish management would take a more proactive approach with the payout in comparison to the buybacks, but that may change at some point when growth eventually slows. We’ll see. I’m excited to see how big the next raise is. Anything less than 20% will be disappointing to me.

      Hope you’re having a great weekend!

      Cheers.

  7. says

    Nice buy! Do you aim to have a certain number of shares in each company, e.g. 100 or doesn’t that apply to your strategy? Visa certainly seems like it’s a strong contender to hold, even if it is a higher priced stock. And yet more dividend payments to add to your list – it keeps getting better :)

    • says

      Nicola,

      I don’t aim to have a certain number of shares in a company. I look at position value and dividend income weight, but not shares. The share number is meaningless because all these stocks are priced differently with different dividends.

      Thanks again for mentioning me over there at the cottage. Really appreciate it.

      Have a great rest of the weekend!

      Best regards.

  8. says

    Seems like a solid dividend grower with good potential for a youngster such as yourself :-). I’m looking at retirement though, and doggone it…. I want my money now. I expect though that by the time you hit the six-oh, you will be glad to have the stock in your portfolio.

    • says

      Steve,

      I’m totally with you. If I were even 10 years older I might be a lot less interested in V. But I have time to let the dividend eventually blossom. In the meanwhile, I’ll be happy with the underlying growth.

      However, I also wouldn’t want this to be a real big position for me. The yield just isn’t quite there yet. We’ll see how it shakes out. I think I’ll be happy with this purchase over the next 10 years or so.

      Cheers!

  9. Spoonman says

    V is a solid buy, I’m jealous!

    V is one of those companies that I’ve wanted to have for years, but never managed to add to my portfolio. I hope to add it in the future so I can super charge my portfolio’s DGR.

    Thanks for the post!

    • says

      Spoonman,

      Thanks for the support. Appreciate you stopping by!

      We’ll see how V shakes out. I think the dividend growth will be impressive, but this next raise will be interesting. I’ll be disappointed with anything less than 20%, so I hope my feelings are correct. I think I’ll be happy with this purchase 10 years down the road, but it will really depend on execution and how much they grow their dividend. We’ll see!

      Hope all is well with you as you near your date. :)

      Best wishes.

  10. says

    good buy on Visa…. I do my share of adding to Visa’s revenue each month.. I pay $4.00 for 10 transactions on my for my bank account. I get a free withdrawal for each automatic deposit. Therefore, it is more advantageous to use my Visa card for purchases on use my bank card to pay bills online.

    • says

      good buy on Visa…. I do my share of adding to Visa’s revenue each month.. I pay $4.00 for 10 transactions per month in my bank account. I get a free withdrawal for each automatic deposit also. Therefore, it is more advantageous to use my Visa card for purchases and to use my bank card to pay bills online. I always pay my Visa in full each month.

      Note to self:: Do not type so fast and proofread.

      • says

        IP,

        I’m with you. I use my Visa card for just about everything. All of my transactions then get routed through my Mint account, which helps immensely with tracking my budget. I then collect the rewards in the form of cash (like last month where I earned $50) and pay off the bill every month. Works for me! :)

        Add in some auto-pay and you’ve got yourself a nice system.

        Best regards.

    • says

      WMX:
      I obviously can’t speak for DM, but in my opinion, the number of shares is not at all relevant. If I want to enter a position, I decide how many dollars I want to invest at that time. Sometimes I end up with 5 or 10 shares. Other times it might be 50 shares. It all depends on the share price. In the case of this transaction, DM decided to buy a bit over $1K worth of shares. I often make purchases in the $1K range. I’m not the least bit concerned with the share count when I make those decisions.

    • says

      WMX,

      Well, it really depends on your means. Investing almost $1,100 is pretty difficult for me, as that’s a lot of money. I guess for you that’s not a lot of capital.

      But my portfolio was built on investing $1,000-$1,500 at a time. A journey of a thousand miles is completed one step at a time.

      Cheers.

      • WMX says

        That makes sense. I just think that you would have been better off buying more shares of a cheaper dividend stock.

        • says

          WMX,

          Buying 10 shares in Company ABC at $100/share is the same as buying 100 shares in Company ABC at $10/share. It doesn’t affect your ownership percentage at all.

          KO completed a 2-for-1 split not long ago. I had twice the number of shares at 1/2 the price after the split. Didn’t change a thing.

          Cheers!

  11. says

    I on Visa as well. I have been in and out of it a few times since the IPO since I seen how well mastercard do and I felt like Visa was a better company. Wish I just bought and hold instead of taking minimal 10-20% gains a couple times. This time I am holding long term.

    Yes the dividend is minimal and its really the bare minimum dividend stock. For most dividend growth stock investors Visa wouldnt qualify for their holdings with yield under 1%. Even times I consider selling it and chasing something with higher yield but Visa is a great company with a license to print money. There will always be debt in the world and they are in a cant lose position. I expect growth and future dividend increases. I dont expect to see over 50% payout from them so I expect div increases to slow within a few years and dividend settle between 2-3.5% yield

    Bottom line great long term hold and very possibly a future dividend aristocrat in the making with big share appreciation potential!

    • says

      Asset Grinder,

      I’m with you. I think this will be a great long-term hold with pretty big share appreciation. My goals don’t really revolve around total return, but I think V should deliver strong results there over the next decade or so. We’ll see. I think they have a lot of tailwinds in their favor, and the growth potential for such a large company is really amazing.

      But I agree this one is a bit different than a traditional dividend growth stock. But as I was saying before it’s not like Johnson & Johnson and Coca-Cola and the like that we like to invest in today always had these 3% yields. They started off like V and increased their dividends over time. Couple a high dividend growth with slower underlying profit growth and you get to where they’re at today. I think V will get to this spot as well one day and it’ll offer metrics like a lot of bank stocks – 2.5% yield or so, lower P/E ratio, and a higher payout ratio. But I don’t mind riding the wave in the meanwhile.

      Thanks for stopping by!

      Best regards.

  12. took2summit says

    Have you considered WHR? I was looking at them recently and was shocked that a company with such high quality brands could be trading for such a cheap valuation. Single digit fpe and very nice growth prospects. WHR is one of those iconic american brands that I can’t see disappearing.

    • says

      took2summit,

      I’ve never looked into WHR. Although, looking at their stock chart is pretty crazy. Looks like they really went on a run starting in the summer of ’12. I’m guessing I haven’t run into them before because they held their dividend static for a while there. So they won’t show up on a typical dividend growth stock list. But looks like I missed out. The dividend growth has been pretty strong and the share price is up big time. I don’t know if I really have room for a company like this in my portfolio as I near 50 stocks, and I don’t know if I’d want an appliance manufacturer anyway. But they’ve done really well. I’d be a happy investor! :)

      Thanks for the suggestion.

      Best wishes!

  13. says

    DM,

    The yield is quite small, but I think V is a great company to own a piece of. What works for some may not work for others. I don’t buy into being overdiversified is always a bad thing. Time will tell, but something tells me it’s another one of those things that the naysayers will be wrong on even if they have points to argue with.

    I might start looking to add to existing positions some, but I still don’t own some excellent prospects in my portfolios.

    Good work!

    • says

      SWAN,

      Well, I don’t necessarily buy into over-diversification either. However, I don’t want to be in a position where I’m actively tracking 70 companies either. My rate of investments in new companies is going to slow pretty dramatically here pretty soon. I’ll likely go over 50 because there are still a few companies I’m interested in owning a chunk of that I don’t yet, but I don’t plan on going much over that number. So from here it’ll be mostly adding to current investments and perhaps selling off some positions from time to time that aren’t performing well. I hope to prune rarely, though.

      Appreciate you stopping by!

      Take care.

    • says

      Henry,

      I see you own a few companies with the lower yield/higher growth profile. And you own MA as well. Nice.

      I think V will treat us both very well over the coming decade and longer. The buybacks ensure huge EPS growth even without big revenue growth, but the revenue is growing aggressively as well. That just spells money to me.

      Hope you’re having a great weekend.

      Cheers!

  14. says

    Pricey little things aren’t they? Congratulations on your ‘shopping’! ha ha I know you’ve been eyeing them for awhile. You are the male version of a girl looking at shoes! Well, not me per se, but maybe in my former life! ;-)
    Enjoy your Sunday Funday!

    • says

      Debs,

      Haha. I definitely enjoy buying stocks much like some women might enjoy buying clothes or shopping. I guess I get the same “rush” or whatever. But my rush is everlasting as the dividends just continue to roll in. :)

      Hope you’re having a great weekend. Thanks for stopping by!

      Best wishes.

  15. says

    DM,
    I’ve also been watching V for a while now. There’s been a growth premium for a long time and it’s finally become accessible for us here. You may have seen this, but All About Interest did an interesting comparison between V and T on this post:

    http://www.allaboutinterest.com/2014/06/new-purchase-actually-two-new-purchases.html

    Points out how long it would take for V to catch up with T in cumulative yield. Cool little calculation.

    -RBD

    • says

      RBD,

      That’s an interesting comparison there. It depends on how it shakes out. T’s DGR will decline if they keep up the $0.01 raises, but I also don’t think V will keep up a 40% DGR for that long. Taxes may factor in to that as well, depending on the account you own it in.

      But T has a big advantage there with the higher dividend growth. I think there’s a place for both in my portfolio, which is why I own both. But they really serve different purposes. It’s just tough for me to compare the two like that because they’re just totally different businesses. T has a a lot of debt, huge capital expenditures, and operates in a slowly growing industry. That’s why the yield is so high. V, on the other hand, operates with no debt, low capex, and in a fast growing industry. I would say V will likely outperform T over a long period of time simply because if you take the starting yield and add in the dividend growth rate that gives you a rough idea of total return, assuming a static valuation. Of course, total return isn’t a primary concern of mine which is again why I own both stocks. One provides me the current yield I like, while the other provides the growth kicker. Average out the two and you have a healthy yield with a healthy growth rate. :)

      Cheers!

    • says

      I read that post as well a couple weeks ago, good stuff. As far as the chart goes however one thing to consider is the dividend reinvestment. If you were to add that to the chart it would take even longer for Visa to catch up to AT&T. This would put it at over 20 years to catch up, and as Dividend Mantra has pointed out, it is unlikely for Visa to continue these generous dividend raises each year. Visa is for those with time on their sides no doubt.

  16. Monty says

    Just curious if you found another broker to diversify? Also, what are your thoughts of motif investing? I created two 30 stock motifs for fun. I haven’t pulled the trigger yet, but I would like the diversity of owning 60 companies.

    • says

      Monty,

      I honestly haven’t looked into Motif at all, so I can’t give you an honest opinion.

      I haven’t diversified brokerages yet, but I think once I cross over $200k in portfolio value that’ll kind of be the point at which I’ll do this. I anticipate a $200k portfolio to eventually cross $500k organically, and that’s the limit for SIPC protection. I haven’t decided on where I’ll go next, but I like Fidelity, TD Ameritrade, and perhaps Merrill Edge as well.

      I hope that helps.

      Best regards.

  17. says

    Thanks for sharing your recent V purchase. I know many comments on this post reflect concern about this purchase as you already have a large number of stocks in your portfolio and the yield for V is very low which some people are questioning the reasoning behind this latest move. Personally, I get it. V is super solid with a lot of growth in its future coupled with the fact it has tremendous dividend increases ever since going public. I’m all for this trade. I think if held long term will provide you with amazing growth and incredible yield on cost for the dividend. Thanks for sharing.

    • says

      DivHUt,

      Thanks! I appreciate the support.

      I understand that this isn’t a prototypical dividend growth stock, but many of the companies we love and invest in today started out like V at one point or another. They don’t all start out with 3%+ yields, 50-70% payout ratios, and stable, secular growth. Obviously, V is a bit more of a “bet” than others because I don’t have that current income to cushion any blows, but I feel the growth potential makes up for that. We’ll see. I don’t see how it could be a dud, but I also would be disappointed with lower-than-anticipated dividend growth. I’m excited to see how much they raise the dividend in the fall. I’m hoping for 25%+. :)

      Thanks for stopping by!

      Best wishes.

  18. frank says

    I have some funds saved up just to buy V on a dip. This is in my long term retirement account. I have two accounts. A taxable high yield current income account and a long term 30 year timeframe retirement account. This helps me separate my purchases and spell out my goals.

    • says

      frank,

      That’s a great way to do it. I don’t personally split up accounts like that because they all fit within what I’m trying to do, and the portfolio’s yield averages out, but I can certainly see why you’d want to split things up a bit like that.

      I hope to have you join as a shareholder at some point. Perhaps it’ll dip from here! :)

      Cheers.

  19. says

    Visa is a great company and I know you’ve wanted to own it for a long time now. Years now. I remember you thought about grabbing some in the 80’s.

    I might look at grabbing a low yield/high DGR stock at some point as well. The thing is, I have clearly defined goals of where my passive income needs to be by the end of the year and small yields are counterproductive towards achieving it. If I hit my goals early I might just take a gamble on growth stock that happens to raise dividends. Companies like that can work out pretty well long term. Hitting my goals will be pretty tight. Not much room for error, we’ll see!

    • says

      CI,

      Yeah, I looked at V quite a while ago. I passed it up and I could kick myself for it. I looked at it in the $80s and quite strongly before it crossed $100. The metrics then looked almost the same as they do today. Can’t win them all, but I decided to finally jump in. With the anticipated growth rate I can’t see how this stock doesn’t cross $300 in the next few years if things to go plan.

      And I hear you on the hesitation. Your thoughts echo mine when this thing was below $100. I passed because I just couldn’t wrap my brain around the low yield, and I had really aggressive dividend goals. Of course, my portfolio was kicking out a lot less dividend income back then so I felt more okay about adding it to the mix now.

      Hope all is well over there! :)

      Best wishes.

  20. says

    Your blog goal for 2014 is $5200/ year in dividends. So, I think if you are well on your way then V is a fine purchase. If you are behind in getting to this goal then there are better yielders out there. No doubt V is a good stock to own in 10 years but did it help you reach your goal over putting $1000 into say COP or RCI?

    • says

      tuliptown,

      That’s a great point there!

      I’m actually on pace to comfortably exceed my dividend goal for the year as I laid out here:

      http://www.dividendmantra.com/2014/06/mid-year-goals-review/

      However, I’m not one to let up. So I really want to crush that goal. But I do feel I have some room here for a Stage 3 stock like Visa. We’ll see how it turns out. I’m keeping my fingers crossed for aggressive dividend growth for the foreseeable future. :)

      Thanks for stopping by!

      Cheers.

  21. Ravi says

    It’s probably a fair decision. It may end up more of a growth stock than a dividend player, but as long as worldwide payments remains a growth industry, the yield will likely trail other players.

    If you’re okay with a low yielding stock, I think it’s still a great buy.

    If it doesn’t serve your income prospects to your satisfaction, I don’t see why you couldn’t sell out of it in 5-10 years and reinvest elsewhere.

    A little portfolio churn never hurt anyone.

    • says

      Ravi,

      Absolutely. We’ll see how it turns out. But you’re right in that if the income growth doesn’t meet expectations I can always sell and invest elsewhere. I try not to sell often, but I make mistakes. I think the risk is low here, and there’s definitely money to be made. I’m optimistic, but I’m also cautiously awaiting the next dividend increase in the fall. :)

      Best wishes.

  22. Bruce Clyne says

    Jason: I’m concerned that your recent purchase of V represents impatience and constitutes a change in the beautifully simplistic strategy that you have previously espoused.

    As the market grinds to a correction, it is easy to compromise the principles that helped you build such a superb record. A different approach that allows you to build cash and buy low after a correction gives you much better long-term performance.

    I do not dispute that Visa has a good growth stock, but don’t compromise your principles by the lack of cheap stocks in today’s market. Slow and steady wins the race and sometimes the best thing is to follow Buffet’s adage to keep your powder dry and be prepared to buy (big) when there is blood in the streets.

    Frugality has been key to your lifestyle and has also allowed you to build a good portfolio using a disciplined approach. It is difficult to wait, but well worth it! Buying low is key to efficient portfolio investment and is the logical extension of your frugality.

    When a $200 stock becomes $100 and still produces is a minuscule dividend it is a humbling experience. It is an event that put your dream of early retirement in jeopardy and can set your dreams of financial independence behind.

    Stay the course! Sometimes the most difficult thing is NOT to buy when the market is high…

    Best wishes, whatever your decision…

    • says

      Bruce Clyne,

      Thanks for stopping by! And I really appreciate the perspective there.

      I don’t totally disagree with what you’re saying here. In fact, I wrote about the joy of sometimes doing nothing at all here:

      http://www.dividendmantra.com/2013/05/dividend-growth-investing-and-joy-of/

      Sometimes just sitting back and collecting dividends is the best course of action. Sometimes inaction is the best action.

      However, keep in mind that I built my portfolio a totally different way. I built it by not listening to the doom and gloom all the way along and regularly investing my $1,500-$3,000 per month in the most attractively valued equities I could find at the time. And believe me, I’ve been hearing about a supposed major correction for almost two years now. So far, so little.

      While I don’t doubt that at some point we’ll see equities pullback, who’s to say when that will happen.

      “As the market grinds to a correction” would assume you know something that everyone else out there does not. I would be careful with that line of thinking, as none of us possess a crystal ball. If we did, we wouldn’t be on the internet sharing our knowledge. We’d be fabulously rich.

      Again, I agree with you that prudence is always warranted. And especially so when the market is providing little opportunity. However, I also believe that the power of consistent investment and regular compounding just can’t be beat for a regular investor like myself. I don’t time the market because I truly don’t know what’s going to happen. I’ve been hearing how crazy I am to keep investing for two years now, and yet if I was sitting on cash I wouldn’t be enjoying the dividend income I do right now.

      Thanks for stopping by. I always enjoy discussing these concepts.

      Best regards.

    • Ravi says

      Wouldn’t you expect your investment strategy to change as circumstances change?

      Dividend growth is a great strategy, but with close to 50 positions, a few growth stocks worth less than 1% of the portfolio doesn’t seem counterproductive, but rational to actually diversify the profile of the portfolio when other opportunities are limited.

  23. says

    Hi Jason,
    As always, nice post.
    I agree with the analysis and initiated a position several years ago at an average price of 80.66.
    I did so partly for the growth of dividends, but also as an engine in the portfolio.
    To that end, I have trimmed about 1000 shares to buy more higher yield DG stocks, but still hold a large position.
    I agree with your rationale, and congratulations for the purchase and the courage to post!
    Time will tell.
    There are plenty of ways to reach FI, and our goal of a sustainable, growing dividend income with DG stocks.
    Hope you enjoy the last bit of the weekend.
    Kind regards,
    Graham

    • says

      Graham,

      Wow, 1000 shares? That would be a hell of a position with Visa. Very nice. You obviously did quite well with your investment. Congrats!! :)

      Thanks for stopping by. I think Visa will do very well over the long haul. I really wish I would have bought in the $80s when I first started investigating the stock, but you live and learn. I think there’s still a ton of potential, but I also wouldn’t want a real big position due to the low yield.

      Hope you enjoy what’s left of the weekend as well!

      Cheers.

      • says

        Yes, I had a big position. I try to concentrate positions like this.
        When it works out that the capital appreciation is large, I like to shift into higher yields, if the yield of these growth stocks is relatively low.
        That is one reason the fast growing dividend stocks are a good choice.
        I have seen a correlation of the dividend growth with the share price.
        The benefit is, you can then rebalance to higher yields.
        Take care, and look forward to your posts.
        You articulate the strategy well, and motivate many!

  24. aawee says

    ..And thank for your great site! It’s a pleasure read it and I have recommended it for my many friends. Im upgrading my portfolio that way I get dividends every month.

    • says

      aawee,

      Thanks for the support. Appreciate it very much! :)

      As far as Deere goes, I just very recently initiated a position in the company after mulling it over. Look out for the article on that purchase this coming Thursday.

      Best regards.

  25. says

    I got to say I had ruled out Visa due to the low dividend, but your post got me considering otherwise. I still think the P/E is too high. Maybe I’m being too conservative, but I don’t like company’s where high growth expectations are priced in. I feel that in the best case scenario, I’ll get what I expect, while the downside is much bigger.

    Still, very good buy looking at the fundamentals and overall quality. I got to say the mobile payments possibility scares me a lot in this space, but when you are dealing with companies like VISA, they might buy their way into this space and provide mobile integration with their payments network and immediately get a huge advantage over the competition.

    Best wishes,
    Dividend Venture

    • says

      DividendVenture,

      I hear you on the price. Although, when stocks with much less growth potential like KO are being priced in the same vicinity (22.43 TTM P/E ratio) you can see the value here with V shares. But I agree that it’s not fun to pay 25 times earnings, no matter what. But I think the price is reasonable considering their potential. We’ll see how it shakes out. :)

      And I also wonder where mobile payments will be a decade from now. What will that look like? If people are paying via phone, who’s network are they using? I think V has the potential to innovate, but certainly buying the winners out (if one emerges) isn’t a bad strategy either (assuming they’ll sell).

      Thanks for stopping by! Hope all is well.

      Best regards.

  26. says

    Nice buy Jason! I think that for your allocation of stocks this investment makes sense. For me and others just building our dividend stock portfolio’s there may not be a place for a stock like this currently.

    • says

      Kipp,

      Couldn’t agree more. I’m only initiating a position here because my portfolio is already somewhat established with solid annual dividend income (over $5,500), a decent market value (almost $170k) and 47 other positions (before this buy). So if I were just starting out all over again it’s unlikely I would have still bought V. I looked at it back when it was under $100, and I regret passing. But I just wasn’t ready for this stock quite yet at the time. My portfolio was much less established with a lot less dividend income at the time. And I was still focusing on Stage 1 and Stage 2 stocks. I feel like I have a little room for Stage 3 stocks right now, like V. Not a lot of room, but a little. That room could expand a bit as my dividend income grows.

      But you’re doing right by sticking to more Stage 1 and 2 stocks earlier in the game. :)

      Cheers!

      • says

        Yea I have an article I am working on about my recent stock purchases that I initiated last Friday. Being it was for four stocks I may split into two posts if the details get a bit too wordy, I may split into two posts anyways just because of the time to write everything and get the details I desire to be in there.

        I do agree that a purchase such as this is a good one for solid long-term growth, but I also have index funds growing in my 401(k) that can serve this purpose. When time comes to rollover, perhaps 20 years in the future, then I can select individual stocks with those funds… it will be like a crazy shopping spree!

  27. says

    Congrats on the purchase. It definitely has good growth potential especially with electronic payments on the rise. Also, the credit card usage is much less in emerging markets compared to developed markets and hence provides with even more growth opportunity.

    • says

      DGJ,

      I agree. The growth opportunities are still pretty big, which is kind of crazy considering the size of the company. It’s quite rare to see a $100+ billion company grow at this rate.

      I’m excited for the future. But I’m excited for each of my investments. Just love being an investor! :)

      Cheers.

  28. says

    DM,

    Nice to see your article on Seeking Alpha this morning! I saw the title and I was wondering if I was going to see your writing attached to it.

    I think I’ve mentioned that I’m a fan of V for a while now. It’s a solid company that’s not going anywhere. Every time I open my wallet to pay for something their name is on my card. For now the dividend is very small, but maybe in 10 or 15 years once they have expanded more in the smaller markets they might start having to pay more dividends. It’s a nice thought but who knows exactly where the payment industry might be then, perhaps some other way of conducting transactions like Bitcoin could gain traction. But I don’t see that happening for a long time, in the meanwhile I think it’s a solid company that will be flexible enough to adapt to the future if things start to change.

    -Zee

    • says

      Zee,

      Yeah, I was glad to see SA republish it. I never know what they’re going to republish over there, but I’m always glad to put my writing out in front of an even larger audience. :)

      And you make a great point there. I personally noticed that Visa was pretty much the last company I hadn’t invested in yet whose services I use so regularly. Well, that’s all been changed now. I’ve already been giddily using my Visa card over the last few days knowing that I was already going to make certain purchases, but I’m now contributing to my own bottom line! Good stuff.

      Thanks for stopping by.

      Best regards.

  29. says

    Visa is a very good growth stock, and I am a big fan of both Visa and Mastercard stocks because I use their services (cards) almost every week. However, I guess it is too early for me to add them in my portfolio as I’m in the stage 2 right now. May be I will initiate a small position next year.

    Best wishes,

    • says

      FinanceJourney,

      Nothing wrong with not being ready for a stock like this. Even though I think I have room for it, I’m also going to keep my overall allocation to investments like this rather low. I still prefer stocks with a 3%+ yield and 7%+ growth potential, overall. A little more bird in the hand with which I can live off of, while offering attractive risk/reward relationships.

      But as a portfolio changes and matures it makes sense to possibly consider allocation to a business like this which can supercharge one’s dividend growth.

      Cheers!

  30. says

    I bought some Visa when it drifted below 200 recently. I thought that at 22 p/e (2014 earnings, ending this Sept), that this was a much better deal than say CHD, or ITW, or many other high quality companies that are trading over 20x. To pay more than 20x requires sufficient growth which many of these over priced companies don’t have enough.

    It could be that Visa is over priced and might be had at a better price soon. But this doesn’t seem to be likely the case as V has always been an expensive stock. There hasn’t really been a good time to buy it, except the occasional pullback below the 20day EMA, as it was when i bought it.

    • says

      Sfi,

      Glad to join you as a shareholder! :)

      And I’m with you in regards to valuation. When you compare V to ADP, CL, ITW, or KO you can see where there’s not a big gap in the valuation, but a really big gap in growth. I don’t really consider V as much of a pure growth stock as many others out there, especially with the growing dividend.

      I do hope it pulls back from here below $200 as that would give me an interesting opportunity to possibly add a bit more. But I’ll likely wait either way until the fall to see how the next dividend raise looks.

      Thanks for stopping by.

      Cheers!

  31. says

    Hi DM,

    Here’s another potential 7 million customers for you, ATM machines and card payment terminals are just in the early stages of roll out here (2 years for terminals in shops) plastic is still viewed with great suspicion and amazement here by the local populace and shopkeepers alike.

    We from the West forget how wondrous and befuddling new technology is because we’ve all been using plastic for 40 years or more, I love the innocence and naivety of people here coming to grips with electronic money, several people will often be seen crowding round an ATM machine showing someone how to operate it, people in shops routinely shout out their PIN numbers for the shop assistant to punch in, or have them written in big numbers on the back of their cards.:)

    Cheers,

    Dave…

    • says

      Dave,

      That’s great! Really appreciate the firsthand experience from someone “on the ground” over there. That’s really interesting. I suppose they’ll learn over time that shouting your PIN across a shop is probably not a great idea. Nor is writing it on the card. :)

      I think the growth potential is great once these consumers realize the ease, convenience, and safety of cashless transactions. We’ll see. There’s definitely and education curve there.

      Thanks for adding that!

      Best regards.

  32. Jarmo says

    Good buy Jason!

    I’ve not yet pulled the trigger with V yet. I did buy the other stock on your watch list (IBM) late June. While at it, I added some XOM and started a position in DE.

    I’ve been trying to ascertain how much I’m willing to pay for the stock and haven’t yet come to a conclusion. Looks like I’ll have to spend more time with the annual statements etc.
    In any case, I’m certain V will provide you with decades of dividend growth and nice capital gains to boot. Hopefully, I’ll make up my mind and join you as a fellow owner of V.

    Br,

    Jarmo

    • says

      Jarmo,

      IBM was one I looked at quite a bit, and I was wavering on buying V because I was stuck between the two. But I preferred V from the outset really, and IBM went on a run. So that made the decision easy for me. Of course, V also popped a bit there, but I think there’s still value based on the potential growth.

      I would definitely do some analysis on V at some point and see if it’s a business you could see yourself investing in. The great thing about V is that the business model is pretty easy to understand. That was another aspect that tilted me toward it and away from IBM this month.

      Hope all is well!

      Best regards.

  33. says

    Hi Jason,
    interesting buy. This stock might perfectly fit into your portfolio. Maybe not today because or its relatively low dividend yield. But let’s see how this company acts in let’s say five years from today.
    Take care
    rickrack

    • says

      rickrack,

      Exactly. It doesn’t look like a dividend growth stalwart right now. But after five or ten years of substantial dividend growth we’ll see where we’re at then. :)

      Congrats on your World Cup win!!

      Cheers.

  34. KeithX says

    Love Visa, and Mastercard too. Between the 2, they are 5.5% of our portfolio. Great choice for the long term (and that should be a major goal for you, young man). ;)

    • says

      KeithX,

      5.5% of your portfolio allocated to these two means you’ve done well over the last few years. :)

      I’m optimistic. I think this will be a great long-term hold for both of us. But I’m anxious to see what the dividend raise looks like in the fall!

      Best wishes.

  35. Scott says

    I see no issue with adding a bit of growth to your portfolio. Something I have done while constructing my portfolio is to allocate 25-30% of it to growth stocks. My rationale is that I’m young enough to make it up. The rest are made up of the big, boring dividend paying stocks.

    It also provides for a bit of organic growth. On average, I realize about 20-25% gains on my growth stocks (holding anywhere from a few months to a year), in which I use the proceeds to enter into more dividend holdings.

    I’ll also enter into unfairly beaten down stocks and ride them back to sanity. Examples that I’ve done over the years are UA, CRM, RHT, EXPE, UBNT. I’m still holding UA and UBNT, which are collectively up over 30% right now.

    As I get older, I’ll scale back on the growth stocks and enter into more dividend stocks. The reality right now is that there just aren’t a lot of undervalued dividend assets out there right now, but there’s still opportunity in the growth stocks.

    • Scott says

      To clarify: the growth stocks that I average 20-25% or so on only happens because I only enter one position or two a year, unless the market is giving me a discount.

      I research them heavily and feel that they were either recently beaten down because of overreaction (stock only grew revenue 28%, people wanted 30%) or I just understand the business model well enough to identify catalysts that aren’t being priced in (typically in the information security industry this happens; recent example for me is PANW).

      Obviously the law of averages would kick in if I’m entering positions like this 4+ times a year.

      • says

        Scott,

        That’s a really interesting strategy there. Seems like it’s worked out pretty good for you. :)

        I personally don’t plan on a big allocation to growth stocks, and I don’t really look at V like a traditional growth stock. I don’t think the P/E ratio is all that sky-high like you see with many growth stocks, especially in the tech and social media space. Plus you get the current income and growth in that income via the dividend. And I think that’s what makes V so interesting. It’s certainly not a traditional dividend growth stock due to the low yield, but other than that it’s pretty attractive. It’s trading for a P/E ratio less than Colgate. And Colgate is no growth stock, at least not from the traditional metrics I’ve seen.

        To our success!

        Best regards.

        • Scott says

          It’s a strategy that requires a lot of work. I wouldn’t do it if I didn’t enjoy it. :) And for me, they’re calculated risks, with some defined rules (e.g., I’ll sell a loser if my thesis is broken to minimize losses, not just continue to hold and pray). It’s just a way to increase the portfolio while not adding a fixed amount monthly to it, as I’m in the “growing a family” stage. Therefore, resources have been allocated elsewhere recently (safer and bigger vehicle, kids’ college funds, more expensive health care, etc). I also do it within the bounds of my risk appetite, which sits around a ‘Medium’.

          I also don’t consider V a traditional growth stock, but classified it as such relative to your portfolio. I think they’ll continue to make investments in the digital payments industry (B2B, etc) and use their free cash flow to do so, most likely through M&A.

          To your point about Colgate: I fully agree they aren’t a growth stock, but I also fully believe that they are overvalued. It’s one reason I’m sitting on 15% cash in my portfolio: should a pullback occur, I can add to my positions.

  36. BCS says

    V looks like a good long term investment to me. Lord knows they are used world-wide.

    I recently sold one of the original stocks that I bought when I first started investing, mainly because it did not pay a dividend and was at an all time high, so it looked like a good time to get out. I re-deployed that capital first by adding to my position in T, and then initiated a position XOM.

    Interestingly, DirecTV was the first non-dividend paying stock that I sold from my portfolio early this year when I shifted my focus dividend growth investing. T was one of the first dividend stocks I bought. Now that T is acquiring DirecTV, it looks like I own it again, and was actually one of the reasons I increased my stake in T. I think DirecTV is a great company and I hated to sell it. I wonder if I would have been better off now, keeping it though the merger.

    • says

      BCS,

      That’s interesting what happened there for you with DirecTV and AT&T. I suppose sometimes we come full circle as investors. :)

      I had a somewhat similar experience. The very first individual stock I ever purchased was GE. I then promptly sold it because I didn’t know what I was doing. Years later I picked up shares in General Electric (for more money, of course) and I kind of felt my own journey come full circle a bit. It was really cool.

      I hope T serves us both well as shareholders! :)

      Best wishes.

    • says

      lrwin,

      Well, I wish I would have waited a while to sell, but I don’t cry over spilled milk. I actually haven’t closely tracked it since I sold off, but I see it was up pretty big today. I’m guessing that’s what prompted your comment.

      But the reason I sold still holds true. As far as I can see they still haven’t raised the dividend, and there’s no communication as to when that might happen. Maybe they will, maybe they won’t. But I don’t like maybe.

      And I’ve done well with the capital I received from selling INTC, as I reinvested that money in BP, KO, and OHI. All have done pretty well for me. Not as well as INTC, but I’m a happy shareholder in these businesses. Besides, I’m not after short-term capital gains. I’m a long-term investor after reliable and regular rising dividends. INTC wasn’t delivering that.

      Furthermore, I’ve never been a real big fan of tech companies anyway. I felt INTC could do well and continue raising the dividend for the foreseeable future. I was right about them doing well, but not the dividend apparently.

      Cheers!

  37. Jason says

    dividend mantra,

    Have you considered a position in LMT? seems like a great dividend company to add to your portfolio. Thanks!

    • says

      Jason,

      I looked at LMT quite a while ago, when I was investing in GD and RTN. I liked it, but the debt load seemed a bit much and I remember reading about some pension funding issues. I probably shouldn’t have let that deter me as they’re still the dominant force in that arena. That being said, I’m not particularly interested now with the budget cuts and everything else. I was looking at Raytheon’s predicted growth rate over the next three years and it’s 0%. So you have to wonder what some of these stocks will look like in a few years.

      Best wishes.

  38. says

    Great post – i’m always enjoying reading your analysis. V has in my opinion enough room to grow in the dividend area. Keep up the good work!
    Cheers,
    Pollie

    • says

      Pollie,

      Thanks so much. Glad you enjoy the writing! :)

      I agree. I think V has a lot of room to go. Which is really unique, considering its size. We’ll see how it goes.

      Thanks for stopping by!

      Best regards.

  39. says

    Jason,

    I knew it was Visa! That stock has been incredibly volatile this year and I’m so happy you suggested looking into it. I really want to join you on this one, the future of this company looks absolutely outstanding, almost ridiculously positive. I expect your dividend income to increase a bunch in the next few years from this purchase, great working getting in now.

    All my best,
    Ryan

    • says

      Ryan,

      Thanks for the support!

      I think Visa definitely has a bright future. I wish I would have bought it when I first looked at it, but I guess I wasn’t really ready for a stock like this. The business model is fantastic, and other than the yield, there just isn’t really anything to not like here.

      Hope to have you as a shareholder some day! :)

      Have a great weekend.

      Cheers.

  40. frank says

    I’ve been thinking about buying V quite a bit. What is bothering me is that Buffett was buying V at a P/E of around 14. Buying V now is paying too much. Buffett is Buffett because he won’t pay more then 10x pretax earnings. Right now IBM is close to this metric. Don’t pay more then 10x pretax income for superior returns.

    • says

      Frank,

      I remember that Berkshire Hathaway bought a big chunk of Visa back in 2011, but a lot of stocks were much cheaper back then. I don’t look at the past. I look at what a company will be worth in the future, and how much cash flow they will be able to generate. I’m discounting future dividends back to the date of investment, not three years ago.

      But I’d love to see 2011 prices again on a lot of stocks. Things were good back then.

      Best regards.

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