Visa’s Profit Numbers Continue To Awe Me

To do something successfully, you have to properly execute a two-step process. First, you must acquire the information that is necessary to find the success, and secondly, you must actually—well—do it.

The Wall Street Journal recently ran a report on how the gap between intense novice poker players and professional players has been narrowing considerably in the past twenty years, thanks to the internet. Even though the pros are still better, someone who studies poker day and night, spending hours googling every poker-related question that enters his head is going to come pretty close to overtaking some of the top dogs as the constant researching on the internet allows passions to be fed.

You’re seeing a similar revolution in the field of do-it-yourself investing; there is absolutely no data points that the well-heeled long-term investor possesses that you cannot get for yourself. Thirty years ago, your broker was a gatekeeper to information—things that you know off the top of your tongue today—Colgate Palmolive has been paying out a dividend since the 1890s, Emerson Electric has a dividend growth streak dating back to the 1950s, Phillips 66 is a 2012 downstream spinoff of Conoco—were fun facts that your broker could dazzle you with at the office to use social proof to demonstrate his competency and make you feel safe entrusting his money to him.

As I continue to study Visa, it becomes clearer and clearer to me that the lay citizen in America is fully capable of uncovering excellent investment opportunities for himself.

I just look at Visa’s annual profit numbers, and I continue to be in awe:

In 2011, Visa’s “worst” quarterly figure involved making $1.23 per share in profit.

IN 2012, Visa’s “worst” quarterly figure involved making $1.49 per share in profit.

In 2013, Visa’s “worst” quarterly figure involved making $1.85 per share in profit.

So far in 2014, Visa’s worst quarterly figure involves making $2.20 in per share profit.

Those are just worst-quarterly comparisons against each year. Looking at their annual profits being reported, Visa grew earnings from $4.99 in 2011 to $6.20 in 2012 to $7.59 in 2013, and there are on pace for $8.80 this year (although Visa’s third and fourth quarters tend to outperform the first half significantly, so Visa could do a bit better than that, such as the $9.00-$9.20 range by the time 2014 comes to an end). The really crazy thing is that these numbers aren’t massaged by leveraging; some companies have been using the record-low interest rates to take on debt and retire giant blocks of stock through repurchase arrangements, which is fine, but here we have something much purer: a company growing its core profits by a rate greater than 10% and using actually cash available from operations to conduct its stock buyback program. What more can you ask for?

The dividend yield is low, but is in rocketship mode: only 20% of Visa’s profits are currently paid out to shareholders as a cash dividend, and when you have a rising payout ratio coupled with a company growing well in excess of 10%, you get interesting long-term results if you buy your shares early enough in the curve and hold on for a decade. You start wondering, “Where’d all that income come from—Visa was only yielding 1%”?

This is what makes America fun in the Age of the Knowledge Economy; the fertile soil for success is there if you put in the research work and act on what you find. Any review of Visa, coupled with the common sense notion that everyone’s cards come equipped with a Visa logo these days it seems, indicates that this is a business with a strong moat. As you stare at its financials, you can see the rapid growth right before your very eyes. You got the first step executed, and only leaves the second question remaining: Now that you have this knowledge, what are you going to do about it?


Originally posted 2014-06-12 02:59:17.

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