Visa Dividend Hike Maybe as Good as It Can Get

Visa announced on Wednesday that its board of directors had declared a quarterly dividend of $0.48 per share of class A common stock, up from the prior $0.40 per share. The quarterly dividend increase raises the annual dividend rate from $1.60 per share to $1.92 per share.

What matters here is that shares closed at $210.92 after a 1% drop on Wednesday, giving the current dividend (before this hike) a yield of only 0.75%. A 20% jump in the dividend should be good, but the new yield is only indicated as being 0.91%.

With earnings estimates at $10.36 in earnings per share for 2015, this represents an income payout ratio of only about 19%. The issue at hand is that much of Visa’s cash and capital that could be used from those earnings is almost certainly held outside of the United States. Repatriating income comes with a steep penalty for American companies, so we might continue to be disappointed and Visa might say this is all it can do without leverage or without a high cost of capital return programs.

The dividend is payable on December 2, 2014, to all holders of record of the Company’s class A, class B and class C common stock as of November 14, 2014.

• The 24/7 Wall St. view ahead of the hike: Visa could raise its dividend by 100% and not blink an eye on paper, but the hike we are willing to forecast is from $0.40 per quarter to $0.48 or $0.50.

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With shares trading at $210.92, the 52-week range for Visa is $194.26 to $235.50, and the consensus price target from analysts is almost $250.00. As a reminder, Visa is the largest of all DJIA components, due to the index being a price-weighted index.