Could Buying Visa Stock Today Set You Up for Life?

Since its 2008 IPO, Visa (NYSE: V), a financial services leader, has delivered well above average returns. Some might wonder how much upside remains, given that Visa is already a well-established giant with billions of credit and debit cards in circulation. Can the stock still produce the kind of performance that will, hopefully, set investors who purchase its shares today up for life? Let's find out.

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Not a saturated market

Visa operates a payment network that facilitates credit and debit card transactions. Although most adults in the U.S. (about 82%) own a credit card and the market in the country is fairly mature, penetration isn't nearly as high outside the U.S. Visa estimates that card-linked credit products as a percentage of consumer spending in international markets is half what it is in the U.S. So, Visa still has opportunities to expand its global reach. Bringing more people into its ecosystem will help boost its business.

Here's another way to see this. Visa should benefit from increased transaction volume, since it earns fees on each transaction it facilitates. The company estimates that there is still about $20 trillion in cash, checks, and other kinds of transactions that it could bring into its ecosystem. Note, this amount dwarfs the company's trailing-12-month revenue of $41.39 billion. But can Visa really capture a decent share of this remaining market? The answer is "yes" because cards have significant advantages.

For instance, they are easier and arguably safer to carry than large amounts of cash, and they can be quickly restricted if they are stolen, something that isn't possible with cash. Visa has been at the forefront of the cash displacement phenomenon, and there is clearly plenty more work to be done. Further, the e-commerce industry is on a long-term growth path. These typically require digital payment methods, so Visa should benefit from this tailwind as well.

Why Visa is still a buy

Visa is a top player in an industry that still has plenty of growth fuel, but can the company maintain its leadership? The answer is, once again, most likely "yes," thanks to the company's economic moat. Not only is Visa's brand strong, but it also benefits from network effects. The more cards in circulation it boasts, the more attractive it is for merchants as a payment method. That's another important reason the stock can perform well over the long run.

Finally, there is Visa's excellent dividend program. Despite its low forward yield of 0.9%, Visa has increased its payouts by 378.6% over the past decade. Opting to reinvest dividends will significantly boost investors' long-term returns. So, can Visa set you up for life? For investors with a long-term horizon of, say, 20 to 30 years, Visa can absolutely do so as part of a well-diversified portfolio.

Prosper Junior Bakiny has positions in Visa. The Motley Fool has positions in and recommends Visa. The Motley Fool has a disclosure policy.