Why Does Visa Have an Inverted V-Shaped Dividend Yield Curve?
Revenue and EPS of Visa
Visa’s (V) revenue rose 9% in 2016 compared to 9.3% in 2015. This growth was driven by service revenue, data processing revenue, and international transaction revenue. The 25% revenue growth for the first nine months of 2017 has been driven by every segment. The company posted EPS growth of -4% in 2016 after 20% growth in 2015. The company saw challenges in 2016 from a Visa Europe Framework Agreement loss and high interest expenses. Share buybacks enhanced the EPS numbers. The 12.4% rise in EPS for the first nine months of 2017 was driven by lower operating costs and share buybacks, offset by higher interest expenses. The company has maintained a very good annual free cash flow balance.
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Visa’s dividend trajectory
The dividend yield curve of Visa had an upward slope between 2015 and 2016 driven by the increase in dividend per share. However, the same yield curve has taken a downward slope between 2016 and 2017 despite the increase in dividend per share. This is due to the rising prices of the company offsetting the impact of the dividend increase. Visa has a dividend yield of 0.6% and YTD price gains of 35%. These figures compare to a dividend yield of 2.3% and YTD price gains of 14.7% from the Dow Jones Industrial Average (DJIA-INDEX) (DIA). The S&P 500 (SPX-INDEX) (SPY) has a dividend yield of 2.4% and YTD price gains of 13.3%. The NASDAQ Composite (COMP-INDEX) (ONEQ) has YTD price gains of 21.4%.
The Reality Shares DIVCON Leaders Dividend ETF (LEAD) is a dividend ETF with exposure to Visa. It has a dividend yield of 0.9% and a PE of 20.2x. The Guggenheim Dow Jones Industrial Average Dividend ETF (DJD) is a dividend ETF with exposure to Visa. It offers a dividend yield of 2.7% and a PE of 20.9x.