Published on July 14th, 2022 by Quinn Mohammed
Berkshire Hathaway (BRK.B) has an equity investment portfolio worth over $360 billion, as of the end of the 2022 first quarter.
Berkshire Hathaway’s portfolio is filled with quality stocks. You can follow Warren Buffett stocks to find picks for your portfolio. That’s because Buffett (and other institutional investors) are required to periodically show their holdings in a 13F Filing.
You can see all Warren Buffett stocks (along with relevant financial metrics like dividend yields and price-to-earnings ratios) by clicking on the link below:
Note: 13F filing performance is different than fund performance. See how we calculate 13F filing performance here.
As of March 31st, 2022, Buffett’s Berkshire Hathaway owned almost 8.3 million shares of Visa Inc. (V) for a market value of $1.8 billion. Visa Inc. represents about 0.5% of Berkshire Hathaway’s investment portfolio. This marks it as the 21st ranking position in the public stock portfolio.
This article will analyze the credit services company in greater detail.
Visa is the world’s leader in digital payments, with activity in more than 200 countries. The stock went public in 2008 and its IPO has proven to be one of the most successful in U.S. history.
The company’s global processing network provides secure and reliable payments around the world and is capable of handling over 65,000 transactions a second. In fiscal year 2021, the company generated nearly $13 billion in profit.
On April 26th, 2022, Visa reported Q2 fiscal year 2022 results. For the quarter, Visa generated revenue of $7.2 billion, adjusted net income of $3.8 billion and adjusted earnings-per-share of $1.79, marking increases of 25%, 27% and 30%, respectively.
Source: Investor Presentation
These results were driven by a 17% gain in Payments Volume, a 47% gain in Cross-Border Volume and a 19% gain in Processed Transactions.
During the quarter, Visa returned $3.7 billion to shareholders via dividends and share repurchases.
As a result of economic sanctions imposed on Russia by the U.S., European Union, United Kingdom, and others, Visa announced in March 2022 that they were suspending operations in Russia, and since then are no longer generating revenue from activities related to Russia.
Russia accounted for roughly 4% of total net revenues for the first half of fiscal 2022 and the full year fiscal 2021.
We estimate that Visa can generate $7.15 in earnings-per-share for the fiscal 2022 year.
Up until the COVID-19 pandemic in 2020, Visa’s earnings-per-share rose every single year at an impressive annualized average growth rate of 22%.
Over the long-term, we believe Visa has plenty of space to keep growing as a result of the global transition towards a cashless society. Global digital payment volume has recently exceeded cash for the first time in history.
However, there are still about 2 billion people worldwide who lack access to cashless payments. Particularly, China and India, which have 1.4 billion people each, are still in the early phases of their transition towards a cashless economy. Therefore, there is a massive growth potential for Visa in these two countries.
Through a combination of growing the number of cards, a rising number of transactions per card holder, general economic expansion and share repurchases, Visa should be able to generate attractive earnings-per-share growth over the coming years.
We project that the company can continue to grow earnings per share by about 10.0% annually through 2027.
Competitive Advantages & Recession Performance
Visa has enormous competitive advantages, as it is one of the largest and most well-known payment processors across the globe. Visa has cultured a strong brand and the company continues to invest in significant sponsorships to further reinforce its brand strength.
The company is able to direct large amounts of free cash flow to shareholders through share buybacks and dividends, or to invest in acquisitions, since the company spends only a small portion on capital expenditures.
However, Visa is not immune to recessions. Since Visa’s profits depend on the total amount of transactions worldwide, the company is affected by an economic crisis, which results in lower spending and lower transaction volumes. This was demonstrated in the 2020 pandemic year which broke Visa’s earnings growth streak.
Still, items like gas, groceries and clothes are necessities. Even with a drop in spending, consumers will likely continue to use debit and credit cards for their purchases. Thus, there is some recession-resistance to the company.
Visa has raised its dividend for fourteen consecutive years so far. The company’s leadership position in its industry affords it the ability to constantly increase its dividend at an extremely strong growth rate, and still maintain a very reasonable payout ratio of roughly 21%. We expect continued dividend growth from Visa of about 10% per annum, in-line with earnings growth.
Valuation & Expected Returns
Shares of Visa have traded for an average price-to-earnings multiple of around 27.5 in the last ten years. Shares are now trading above this average, which indicates that shares could be overvalued at the current 28.6 times earnings.
Our fair value estimate for Visa stock is 25.0 times earnings. If this proves correct, the stock will incur a -2.6% annualized drag in its returns through 2027.
Shares of Visa currently yield 0.7%, which is in-line with the average yield of 0.75%. On a dividend yield basis, Visa shares seem to be trading at about fair value. Visa has massively increased the dividend over the last decade, and this growth has kept up with the share price, resulting in a consistent dividend yield.
Putting it all together, the combination of valuation changes, EPS growth, and dividends produces total expected returns of 7.9% per year over the next five years. This makes Visa Inc. a hold.
Visa has produced outstanding growth during the last decade, including significant profit, dividend, and share price gains. We expect that future performance will be a bit more tame than the 20%+ earnings-per-share growth exhibited in the 2009 to 2019 stretch. Still, Visa has a very strong earnings growth outlook.
Shares appear to be slightly overvalued here, so there may be a better entry point in the future, but the company’s growth thesis remains intact. And we anticipate continued double-digit dividend increases in the intermediate term.
Other Dividend Lists
Value investing is a valuable process to combine with dividend investing. The following lists contain many more high-quality dividend stocks:
- The Dividend Aristocrats List is comprised of 65 stocks in the S&P 500 Index with 25+ years of consecutive dividend increases.
- The High Yield Dividend Aristocrats List is comprised of the 20 Dividend Aristocrats with the highest current yields.
- The Dividend Achievers List is comprised of ~350 stocks with 10+ years of consecutive dividend increases.
- The Dividend Kings List is even more exclusive than the Dividend Aristocrats. It is comprised of 44 stocks with 50+ years of consecutive dividend increases.
- The High Yield Dividend Kings List is comprised of the 20 Dividend Kings with the highest current yields.
- The Blue Chip Stocks List: stocks that qualify as Dividend Achievers, Dividend Aristocrats, and/or Dividend Kings
- The High Dividend Stocks List: stocks that appeal to investors interested in the highest yields of 5% or more.
- The Monthly Dividend Stocks List: stocks that pay dividends every month, for 12 dividend payments per year.
- The Dividend Champions List: stocks that have increased their dividends for 25+ consecutive years.
Note: Not all Dividend Champions are Dividend Aristocrats because Dividend Aristocrats have additional requirements like being in The S&P 500.
- The Dividend Contenders List: 10-24 consecutive years of dividend increases.
- The Dividend Challengers List: 5-9 consecutive years of dividend increases.