Visa Inc. — The Business Of Money

Investing is about finding the best places to maximize your money.

And Visa Inc. ($V) certainly seems like an ideal candidate.

This company is a compounding monster — consistently beating the market and outpacing inflation year-over-year.

Today’s article examines what Visa does. And if its a good investment.

What Does Visa Inc. Do?

Investing in Visa is like owning a toll road for all cashless transactions.

Visa operates the VisaNet processing network. Almost every credit card and debit card operates on either VisaNet or the Mastercard network — a duopoly on electronic payments.

Unlike American Express, Visa is not a card issuer and it does not extend lines of credit.

Instead, Visa operates a payment network that it allows banks and card companies to transact with. And if you pay for something with a card operating on the Visa network, Visa gets a percentage of the transaction.

As an example, the Chase Freedom Unlimited card uses VisaNet.

Chase Bank handles the lending risks, while Visa maintains the payment network. And Visa collects a “swipe fee” of 0.14% per transaction.

Visa Inc. Fundamental Analysis

Visa and MasterCard are both Wall Street darlings.

As such, the two companies trade at extremely high valuations. While also offering extremely low starting dividend yields.

Visa is the better “value stock” of the two, with a slightly lower price to earnings ratio of 23.18. And, a higher starting dividend yield of 0.91%. Surprisingly, this isn’t as bad as I thought it would be when I started to research this company.

A PE ratio of 23.18 is in-line with the S&P 500. Which is pretty reasonable, considering Visa’s market-beating performance.

Visa stock has delivered a 10-year average annual total return of 17.49%. Almost a full 7% per year more than the Vanguard S&P 500 ETF. Put another way, a $1,000 investment into Visa stock would have compounded to over $5,000. While a $1,000 investment into Vanguard’s VOO would have grown to a little over $2,800.