Crazy Visa Statistics
When you think of a dividend paying stock, Visa does not immediately come to mind. You might change your mind as you drool over these stats:
- Payout ratio: 18.33%
- Dividend Coverage Ratio: 545.69%
- 3 Year Growth Rate: 38.2%
- 5 Year Growth Rate: 33.1%
- 10 Year Growth Rate: N/A
According to Tim, Visa [is] Probably The Best Investment You Can Make Today. I have to agree and that’s why Visa is now my third largest holding by market value after Apple and Kinder-Morgan. Altogether it only contributes $41.83 per year in dividends (now $50.19 after yet another 20% increase!). If I sold Visa and bought BP I could have close to $300 per year. However, I’m not looking for income now or even in the next 10 years; my thoughts are 20+ years down the road. As you will shortly see, the dividend growth projections based on the 30 Year Dollar-Cost Averaging model, which is available from my spreadsheets page, are just crazy!
For the growth stocks with high rates of dividend increases like Visa, the model does fall apart rather dramatically. In the model’s current iteration, you pick a constant expected annual stock appreciation, initial dividend yield, and an expected annual dividend yield increase. There’s currently no way to say that you want a certain percent for x number of years and then drop that percent to something more typical for the remainder. I’ll have to try and program in that functionality in a future version.
To be as “fair” as possible when I use this for a more traditional company, like Coca Cola, I just take a look at the average stock appreciation over a long period and then the average dividend growth over 10-20 years. That works for a typical stock like Coca Cola.
However, using data from Gurufocus, Visa has a 5 year dividend growth rate of 33.1% and a CAGR of 32.6%. After plugging that data into the 30-year DCA spreadsheet, these are the results:
With a single initial investment of $5000 and then reinvested dividends:
Year 5: Annual dividends: $123. Total value: $21,200
Year 10: Annual dividends: $531. Total value: $89,944
Year 15: Annual dividends: $2,297. Total value: $381,851
Year 20: Annual dividends: $9,944. Total value: $1.6 million
Year 30: Annual dividends: $186,695. Total value: $29.3 million
This obviously cannot happen. Visa will have to stop growing as fast and slow the rate of their dividend increases. If it continues ad infinitum as it has the past 5 years, by the time I’m approximately 60, that one time investment of $5000 into Visa will be worth $29.3 million. Even considering inflation, that’s a good return!
Here’s a more realistic model. Initial $5000 investment. 9% a year stock growth and dividend increases at 15%. If you play around with the spreadsheet yourself you’ll see that growth becomes exponential anytime the dividend growth rate is significantly higher that the stock appreciation over a long enough period.
Year 5: Annual dividends: $69. Total value: $8,013
Year 10: Annual dividends: $146. Total value: $13,003
Year 15: Annual dividends: $314. Total value: $21,449
Year 20: Annual dividends: $689. Total value: $36,143
Year 30: Annual dividends: $3633. Total value: $112,520
Much better numbers on the second model. I’d expect Visa to do better than 9% a year and 15% dividend increases for at least the next 5 years. After that, your guess is as good as mine.
Here’s the spreadsheet to play around with: Please only edit the highlighted data so you don’t break the functions for others. If you want a version that you can edit as much as you want, please visit my spreadsheets page.