Visa stock (NYSE:V) looks to be one Dow Jones stock that blends the potential for substantial dividend growth with a fair value.
Visa Stock: Financials do not correspond to its recent stock price drop.
Visa’s stock (NYSE:V) has been down 13% year to date. While this is somewhat better than the Dow Jones Industrial Average, it is still a significant drop for the payments processor considering its financial performance this year.
Visa’s fiscal year ending on September 30 will not be revealed until Tuesday, October 25, but analysts predict $7.42 in adjusted diluted profits per share (EPS). This is a 25.5% increase over the previous year.
Fears of a recession may cause a slowdown in adjusted EPS growth in the current fiscal year, which is most likely the cause of the stock price dip. Rising interest rates and soaring inflation are projected to put a damper on consumer spending and travel in the coming quarters. As a result, analysts expect Visa’s adjusted EPS growth to drop to 12.8% this fiscal year.
The good news for the corporation is that a short-term downturn will not impact long-term growth. Visa stock (NYSE:V) growth prospects are being boosted, as they have been for many years, by the advent of e-commerce and the trend away from cash and toward other payment options. These growth drivers explain why Boston Consulting Group predicts that the global payments sector will expand from $1.5 trillion in sales in 2021 to $2.9 trillion in revenue by 2030.
As the premier payments industry participant, Visa could benefit greatly from this worldwide payment expansion. Analysts forecast 18.5% annual adjusted EPS growth for Visa over the next five years. These forecasts incorporate the previously predicted reduction in growth for fiscal 2023.
Visa Stock: The dividend can only go.
Compared to the S&P 500 index’s 1.7% dividend yield, Visa’s 0.8% payout may seem little. Over the last many years, the company’s outsized stock price gain has contributed to the low yield. And it is exactly because of its unimpressive yield that it is such an appealing alternative for dividend growth investors.
If Visa’s profits in the next fourth-quarter report come in around analyst expectations, the company’s dividend payout ratio will be merely 20%. This frees up funds for smart acquisitions, debt reduction, and share repurchases. And it is because of this low payout ratio I expect Visa’s annual dividend growth will stay at a high percentage level for the next 5 to 10 years.
The company’s future price-to-earnings (P/E) ratio is just 22.4. Given that Visa’s profits compound at roughly 20% per year, Visa stock (NYSE:V) has an appealing growth prospect at a fair price for investors.
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Author Okoro Chinedu 
