$V · Dividendology · 2026-11-03

Visa has quietly performed quite well over the past year. If we look at the year-to-date, it has increased by more than 21 percent, but the story behind it is quite interesting, because it went from $350 per share at the beginning of 2026 to $295.

However, the stock has risen more than 40 percent since the end of the first quarter and has gained 18.59 percent in the past month alone. First, Visa announced a 16.4 percent increase in their dividend.

So this is a major dividend increase, which we will discuss in detail in a moment.

However, we also see that Visa released their latest quarterly earnings report just a week ago where they posted better-than-expected profits. Non-GAAP EPS for the fourth quarter was 3.48, 4 cents above expectations, and revenue rose 13 percent year-over-year, in line with forecasts.

So today we have a lot to analyze about Visa stock. And that's exactly what we're going to do in this video. Looking at what dividend metrics mean, examining the stock's current valuation level , understanding the business properly, and discussing one of the most misunderstood aspects of Visa's business: capital allocation.

If you are thinking about investing in Visa or MasterCard, you must understand this.

Now, let's start talking about Visa's 16.4 percent dividend increase; This is an incredible dividend increase, earned from this holding in my personal portfolio.

What we can see is that this stock's 10-year dividend CAGR has historically been around 14.5%, which is truly incredible, but what's even more impressive is that this year's dividend growth was even faster than the 10-year CAGR.

Many times when you see dividend growth at this stage, the dividend momentum starts to slow down, but that hasn't happened with Visa. What's actually quite surprising is that we see that the free cash flow payout ratio in 2016 was about 26.7%. At the end of 2026, it was only 23.18%.

So, the free cash flow payout ratio, that is, the percentage of their capital or free cash flow that they have to use to pay dividends , has actually decreased.

What is the reason for this? Well, that's easy. Free cash flow has grown much faster than dividends. This is really a wonderful thing to see. So, in 2016 they were paying a dividend of 59 cents per share. Now, it's over $2.79.

If you want your portfolio to become a dividend growth machine , the underlying holdings need to be free cash flow growth machines. And Visa has been able to achieve just that.

Now, if we go to our stock screener , the information will load courtesy of ticker data , but what you'll notice immediately, at least what I've noticed, is that we've seen a big jump or increase in earnings per share from 2025 to 2026.

Typically we see pretty good growth from Visa, but this seems a little more dramatic. Why did this happen? To start, let's take a closer look at what actually happened to income.

What you will notice is that revenue increased from around 40 billion in 2025 to around 45.9 billion in 2026. This is definitely very strong growth. I'm not saying it isn't, but it's not the reason for all the growth in earnings per share.

So, what does this mean naturally? This means Visa has done a lot of share buybacks in 2026.

And indeed, we are seeing it happening right here. Their number of shares has decreased from 1.94 billion to 1.689 billion. So, they bought a lot of shares. And I mean a significant amount of shares.

And this is where we need to start having a broader discussion about Visa's capital allocation , because the same applies to free cash flow. For example, from 2025 to 2026 , free cash flow increased from approximately 21.57 billion to 22 billion.

But if you look at free cash flow per share , you'll see a much bigger jump from $11.11 to $13.06. Free cash flow per share is growing at a much faster rate because they are also doing significant share buybacks.

So again, we need to take a moment to discuss capital allocation. Now, why is it so important for us to do this when it comes to visas? Because you will see something that many people avoid.

Typically, we pay close attention to the free cash flow payout ratio. Visa has paid out about 23% of their free cash flow as dividends. This is the number for 2026. But take a look at what the overall picture of capital allocation looked like in 2025.

Now, when I talk about the big picture , remember, when it comes to rewarding shareholders, management can either pay dividends or buyback shares. Theoretically both of these come from free cash flow.

So in the case of Visa, we see here, they paid out about 21.5% of their free cash flow in 2025 as dividends, and look at this. They used their free cash floor to buyback 84.3% of their shares in 2025.

84.3 + 21.5 = 105.8%. They have used more than 100% of their free cash floor to buy back shares and pay dividends in 2025.

And looking towards 2026, not much change is seen. We can see that they used 92.7% of their free cash flow for share buybacks in 2026 and about 23.2% for dividend payments.

So, in total, they used about 116% of their free cash flow to reward shareholders through share buybacks and dividend payments. Now, if you see this, you're probably wondering, first of all, how are they doing this and secondly, why would they do it?

First, let's start by answering why. Why would a stock like Visa use more than 100% of their free cash flow to buyback shares and pay dividends, and remember Mastercard is in the same situation?

And this is where we need to start understanding the larger business model. Most people consider Visa a growth stock. And I think, when you look at the 10-year chart, you can understand why they think that.

But what does it really mean to be a growth stock? For many, this means they are growing their free cash flow or income at a high rate. And see how Visa has predicted their revenue growth in the future.

In 2027, their EPS is projected to grow by about 21%. In 2028, 14%. In 2029, 13.38%.

So, yes, this is a stock whose earnings are growing rapidly. But naturally we ask, how can this company project such rapid earnings growth when it is spending all of its capital and cash flow on share buybacks and dividend payments ?

Typically, companies reinvest a lot of capital into their businesses, especially in the case of stocks, which Visa has seen significant growth in the past decade and is forecast to see in the next few years. This is not the case with visas.

Why doesn't this happen? There is a reason behind this. This is secular growth. What do I mean by this? This is the kind of growth that the company can achieve naturally without reinvesting in the business.

So, the picture we see here is old. Remember that. So, instead of focusing on the growth rate , focus on the business parts of Visa here. We have services, data processing, and international transactions sectors.

The service is essentially a fee related to the dollar value of payments made using Visa credentials.

For example, spending more on a bank's Visa card usually results in more service revenue. Then there is data processing. This is mainly a fee related to the number of transactions.

Remember that. The number of transactions and the additional processing and security services that accompany them. So, if Visa sends the purchase request to your bank and helps match and settle the authorized payment , they will collect a fee there.

And then there are international transactions. These are fees associated with cross-border transactions and currency conversion activities. For example, if a US cardholder buys something from a French merchant.

Each of these business sectors can grow without reinvesting in the business. These are all growing naturally. Visa card usage is increasing, the number of transactions is increasing, and online commerce is expanding.

At the same time, it is also a shield against inflation, as they charge a small percentage fee from each transaction, so they are virtually unaffected by inflation. These factors help Visa move forward quickly without reinvesting in the business.

And so, when we look at their return on invested capital (ROIC) , it's really impressive. However, one of the reasons why their ROIC (return on invested capital), which is usually one of the indicators of the quality of a business, is so high in Visa is that it is not difficult to achieve a high ROIC by reinvesting very little capital in the business.

So, look at this example in the case of Visa. You need to understand the formula for compounding. When we talk about how fast earnings can grow , it's just a simple calculation.

This is your return on your invested capital multiplied by your reinvestment rate.

So, if your return on invested capital is very high, even if your reemployment rate is low, as is the case with Visa, earnings can still grow at a substantial rate.

And remember how Visa is allocating their capital. They are, as we've seen before, buying back shares , which will boost other per-share metrics. So, EPS (earnings per share) increases significantly, revenue per share increases and of course free cash flow per share , which is the main driver of intrinsic value , also increases significantly.

Suddenly we began to understand the beauty of this business model. Visa's capital allocation is actually similar to more mature dividend-paying stocks. However, it could still grow at a considerable rate. It really is the best of both worlds.

They can pay dividends and buyback shares without sacrificing growth. Not only that , they can increase their dividend by 16.4 percent.

Now, after hearing these words, you might be thinking, "Okay, that makes sense." And that's certainly great news, but still, how is Visa able to allocate 116 percent of their free cash floor to buybacks and dividends every year?

Actually, we need to take a few things into consideration. Free cash flow measures the amount of cash generated over a given period of time. This does not include cash accumulated in previous years or money raised through debt issuance.

For example, Visa actually raised about $3.92 billion by issuing senior notes in fiscal year 2025, and they ended 2025 with about $20 billion in cash and cash equivalents.

So, it can actually be sustainable for some time and even profitable if done correctly. So, when is it done correctly? When does this really make sense in business? In fact , Visa's existing network, as we mentioned earlier, can support greater payment volume without a proportional increase in factories, inventory, or physical infrastructure.

For example, their capital expenditure (capex) in 2025 was around 1.48 billion, while their operating cash flow was 23 billion. And with this capital expenditure, it's likely that all of their internal projects were already properly funded.

So, naturally they wanted to return their surplus capital.

And people will argue all day about which is better, dividends or share buybacks. And honestly, this is a futile argument because it depends entirely on so many factors. But the reality is, buying back shares when the share price is low is a very good decision.

And when you have a stock like Visa that is increasing its intrinsic value at such a rapid rate , you can understand why share buybacks have been so beneficial over the past decade.

Even in the past year, we have seen that share buybacks were very effective during this period, when Visa's share price fell to $299 and is currently trading at $425.

And here's what many income investors avoid. Share buybacks can actually increase your dividend yield per share. Why? This is the same logic as earnings per share, revenue per share, or free cash flow per share.

If the number of shares continues to decline, Visa will not need to increase free cash flow at such a high rate to increase its dividend per share. In fact, the dividend they pay may remain the same , but if they continue to buy back shares, the dividend per share may actually increase.

So, now we have a much deeper understanding of our business model and capital allocation priorities , and you can see why organic revenue is growing at a very healthy rate. Net income increased by about 13% in the fourth quarter of the fiscal year.

So, now we need to talk about two things. We need to discuss valuation and the potential threats to agentic commerce and stablecoins. Let's start talking about valuation. We can see that Visa's PE multiple fell to 22.4 at one point this year.

To be completely transparent , I have held Visa shares in my portfolio for a long time. I actually didn't add any more shares at this stage.

Visa is already a big part of my portfolio, I would definitely buy more shares, but MasterCard's valuation level was much the same, even though it had much higher growth potential.

So, I definitely took advantage of the valuation multiples of these stocks falling. When we look at Visa , we see that their average PE multiple over the last 5 years was around 26.5.

After the share price rose recently, it is now around 27.5. That is, it is trading very close to historical valuation levels , but at a slight premium.

Even if you look at the 3-year PE multiple, there is n't much change. But, if we look at the last decade, we will see that the average PE multiple is around 28.48. So, compared to the past decade, they may be trading at a slight discount.

But the reality is that transactions are happening where they are historically supposed to be.

So, what does this tell us? This tells us that if Visa can maintain their historical revenue and profit growth and continue to implement the same capital allocation plan , then theoretically we could see a great opportunity for growth in the future.

if Visa can maintain their historical revenue and profit growth and continue to implement the same capital allocation plan, then theoretically we could see a great opportunity for growth in the future.

For example, if we go back to our sensitivity analysis and assume that they will achieve their EPS target of $19.43 by 2029, we just put it in here and assume that they are trading at the average 12-month trailing PE multiple of 33 over the last 10 years.

You will still see that future returns are very strong at 14.6%. This is that number.

So, ultimately we have to ask ourselves that question again. What exactly is the threat of agentic commerce and stablecoins? There have been times in the last two or three years when we've seen Visa shares fall because the market was worried about it.

They did n't know what was going to happen in the future.

But, the reality is this. AI agents still need a way to make payments. Not only must they have a way to make payments, but they must also have the ability to complete secure transactions.

No one will benefit more from this than Visa and MasterCard.

So, the more we see the expansion of agentic commerce, the more Visa and MasterCard will continue to benefit from long-term growth. Delegating purchasing responsibilities will make the approval process more valuable.

Every merchant or seller needs to know whether an agent is legitimate, whether the customer is actually authorizing the purchase, and what kind of spending limits apply.

Visa is set to be one of the few platforms that can combine agent verification, tokenized credentials, and customer authorized purchase instructions.

In terms of stablecoins, Visa will be able to connect digital wallets to existing merchants and create card payment operations. And again, these must be secure transactions, where both Visa and MasterCard truly benefit.

So, is there any change happening? Yes, it is definitely happening, but I think Visa is in a position to benefit a lot from this and the market has understood this reality, which we can see from the growth of about 19% last month and 30.4% in the last 6 months.

So, is Visa an attractive investment at current prices? The point is, people look at the 10-year chart and see that it has grown by 420%. They look at the 5-year chart and see that it has doubled.

They look back at last year and see that it outperformed the market and assume that the opportunity has been missed.

But, the general argument is that Visa is essentially trading in line with its historical valuation levels. And if revenues and income continue to grow at the rate they have historically grown, which is likely to happen now, then Visa is not an unreasonable opportunity for investment at current levels.

The question you should ask is, which is the better option, Visa or MasterCard? Now, make no mistake, I don't think Visa is incredibly cheap by any means, but you can see that there were definitely times when it was cheaper.