Chris Hill: Visa reports their latest quarter next week, but in the news today because Visa
is hiking their quarterly dividend nearly 20%.
That sounds great until you look at the actual number. It's going from $0.21 a share to $0.25 a share.
Look, it's a boost. I'm sure the Visa shareholders are happy about that.
Does this tell you anything about what we should expect next week? Visa is a monster business.
It's a $330 billion company. They've got the cash to hike their dividend.
But in a weird way, this move raises more questions than answers for me.
I look at this and I think, wait a minute. Why aren't you hiking it more?
What else could you be doing with that money? What, if anything, does this tell you?
Jason Moser: You hit the nail on the head there, it actually makes you start asking
a few more questions and digging in a little bit deeper.
And once you dig in a little bit deeper, you come away from that thinking, what the hell?
Why aren't these guys paying me a bigger dividend or something?
There's some pretty interesting numbers behind here.
I'm always happy to see the dividends of the shares that I own go up, and I'm a Visa shareholder.
I'm never going to turn that down.
And I'm not just going to pick on Visa, because MasterCard is essentially the same here, they're
kind of in the same boat.
I don't think they're doing enough on the dividend side, and the numbers really do bear
that out, particularly when you consider the models.
They generate these net margins regularly of 40% or higher. They just generate buckets of cash.
They have strong balance sheets, very reliable, competitive positions there.
When you look at the numbers alone, from 2013 through 2017 Visa spent $26.7 billion on share repurchases.
Then, that share count has come down.
That's good, that helps juice that earnings per share number, because it brings down that share count.
These companies are always going to be really valued on that EPS multiple.
$26.7 billion in share repurchases. Over that same stretch, they spent just under $6 billion on dividends.
Considerably more of their capital is going to repurchases as opposed to dividends.
I don't know that you would ever argue one of these businesses to be cheap.
These are leaders in their space.
Much like companies like Home Depot or McCormick, you rarely see them on sale.
Then, you start asking yourself, really, what would you rather have?
Would you rather have them bringing that share count down or give you the cash in the pocket?
I mean, give me both, right? But perhaps you could juice the dividend a little bit more.
Those yields are still only 0.5%.
The flip side of that is, as a shareholder, I think we get to look forward to many dividend
raises to come in the future. I plan on holding the shares indefinitely.
But as you said, it creates a lot of questions and you come away scratching your head.
Hill: Also, when we've seen the innovation with companies like PayPal and Square,
one of my questions when I was looking over their financials this morning was, why aren't they
taking a run at one of those companies? Maybe not PayPal.
And I'm not saying necessarily, why aren't they going out, sitting down with Jack Dorsey, and saying, "OK, Jack.
We're 11X the size of Square. We'd like to bring you in house.
How do we make this happen?" I'm not saying that.
But when I see nothing but share buybacks and dividend hikes, meager as they are,
I ding companies a little bit.
Maybe that's unfair, but I look at that and go "Those are your two best ideas when it
comes to capital allocation?" Moser: I think that's probably is pretty fair.
Matt Frankel and I talked about this on Industry Focus before, we look at companies like Visa
and MasterCard, compare them to PayPal and Square.
The neat thing about businesses like PayPal and Square -- remember, PayPal has Venmo, Xoom.
It has a number of brands under that umbrella.
These are businesses that were very much built based on mobile technology and technology of today.
Visa and MasterCard have been around for a long time, essentially just operate that toll booth.
I think that those two bigger businesses have suffered a little bit from this move towards technology.
So, they've had to figure out ways to partner up with companies like PayPal and Square and
find a new position in that value chain.
So, you can fund your PayPal account with your Visa card that's linked to your checking
account, or whatever it may be.
Visa and MasterCard still get to play in that sandbox, but they do maintain, perhaps,
a little bit of a diminished role from before. PayPal is such a big company now.
It's around a $100 billion market cap, I think technically still bigger than American Express even today.
Square, I think, is headed down that same path.
For Visa and/ or MasterCard to talk about an acquisition is going to cost an arm and a leg.
Plus, I don't think those businesses are interested.
And, you probably have some antitrust questions, as well.
I think they're going to continue to figure out ways to partner up with businesses like
those to maintain a position in that value chain so they get something, because something
is ultimately better than nothing.