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Why Visa’s Repurchase Program Is Getting Investor Attention

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Visa repurchased $20 billion of stock

Over the past five years, Visa (V) has spent $20 billion in various buyback programs. However, in the same period, Visa has been able to reduce float by merely 10%. Buying back stock helps improve EPS growth by reducing outstanding shares, but Visa doesn’t solely depend on buybacks for EPS growth. In recent years, in order to buy back outstanding shares, Visa has deployed a considerable amount of free cash flow.

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Insights about the program

In fiscal 2Q17, Visa delivered on its commitment to driving shareholder value by returning capital of more than $2 billion to shareholders. Out of this $2 billion, $1.7 billion consisted of share repurchases and around $400 million consisted of dividends.

In upcoming quarters, Visa is planning to accelerate its share buyback activity to offset the equity dilution from the Visa Europe transaction. Also, Visa received authorization to increase share buybacks by $5 billion during a recent board meeting. Thus, its total purchase authorization comes out to be $7.2 billion.

Visa also declared a $0.165 per share quarterly cash dividend on class A common stock, which will be payable on June 6, 2017. Visa’s five-year dividend growth rate is 19.4%. Visa’s dividend yield stood at 0.70%. In comparison, MasterCard (MA) has repurchased 9 million shares for around $1 billion. The company has returned $238 million in the form of dividends.

Competitor analysis

Visa’s dividend payout ratio on a trailing-12-month (or TTM) basis is better than its peers’ ratios. Visa’s payout ratio on a TTM basis stands at 31.2%. Peers have posted the following payout ratios on a TTM basis:

  • American Express (AXP): 21.8%
  • MasterCard (MA): 21.3%
  • Discover Financial Services (DFS): 20.4%

Competitors have also reported decent dividend yields. American Express’s (AXP) dividend yield stood at 1.7%, MasterCard’s (MA) at 0.72%, and Discover Financial Services’ (DFS) at 2.0%. These companies jointly form 0.94% of the Vanguard S&P 500 ETF (VOO).

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