At its core, long-term investing is all about identifying quality businesses with a runway for future earnings growth and paying a reasonable price for shares in those companies.
Visa (V -0.19%), a blue chip stock that is a component of the storied Dow Jones Industrial Average (DJINDICES: ^DJI), has an industry-leading position in the payment processing space, a clear runway for future growth, a growing dividend, and sports a fair valuation.
The company checks all the boxes of a foundational holding, but the secret is out. On Friday, Visa stock rocketed to a new all-time high in response to first-quarter 2025 earnings. Buying a stock at an all-time high can seem counterintuitive. As consumers, our instinct is to get a good deal through buying products on sale. But investing in businesses is different. A stock can still be a good buy at an all-time high if business is excellent. And Visa is arguably one of the best businesses on the planet.
Here’s why the dividend-paying growth stock is worth buying now.
Image source: Getty Images.
Consistent results
Visa’s first-quarter 2025 earnings were solid, with payment volumes up 9% year over year. Processed transactions increased by 11%, revenue popped 10%, and non-generally accepted accounting principles earnings per share jumped 14%.
Visa’s international business shined this quarter, with 11% growth in international payments volume on a constant currency business — outpacing the 7% growth in the U.S.
The more Visa can tap into international markets, the stronger its network effects will become. Network effects refer to Visa’s growing global reach. Visa’s network strengthens when customers use Visa debit and credit cards for more transactions, and more merchants accept those cards as payment.
A steady performer no matter the business cycle
The business is less cyclical than other financial companies because Visa collects fees every time a card is swiped, tapped, or entered digitally. Sure, a portion of the equation is the dollar amount spent using Visa cards, so Visa benefits from a growing economy. But a bigger long-term tailwind for the company is consumer and business adoption of its cards.
Visa operates an open-loop payment network, whereas American Express (AXP -0.22%) has a closed-loop network. American Express issues its own cards, has higher annual fees for cardholders, and more control over merchant fees and interest income. But Visa and Mastercard pass along the credit risk to banks, which benefit from their processing networks. In this vein, Visa is more of an intermediary between the banks and cardholders, which makes it easier for Visa to grow.
The hands-off approach also leads to higher operating margins. In the quarter, Visa generated $9.51 billion in revenue and only had operating expenses of $3.28 billion — giving it an operating margin of 65.6%. Visa is converting nearly two-thirds of every dollar in sales into operating income — a testament to the strength of its business model and the value of its payment network.
A massive capital return program
Visa continues to deliver steady growth in the underlying business, generating plenty of excess cash to pay dividends and repurchase stock rapidly. The company spent $3.9 billion on buybacks and $1.2 billion on quarterly dividends.
So, while Visa, yields just 0.7%, it’s important to realize that the company is returning far more money to shareholders. In fact, if Visa didn’t buy back any stock and used its entire capital return program on dividends, it would have a run-rate yield of 3.1%.
Visa’s premium valuation
Consistent buybacks have kept Visa’s valuation in check by allowing earnings-per-share growth to outpace net income growth. So, despite delivering impeccable returns for long-term investors, Visa is still a fair value.
V PE Ratio data by YCharts
As you can see in the chart, Visa’s price-to-earnings (P/E) ratio is higher than its historical average, but its forward P/E is within range. That means Visa is expected to grow into its valuation within a year if its earnings meet consensus analyst expectations and if the stock price stays the same. However, if the stock price continues rising over this period, the valuation could get stretched thin.
A stock worth the cheery consensus
One of my favorite quotes by Warren Buffett is, “You pay a very high price in the stock market for a cheery consensus.” This means that if a stock is widely favored, it may be expensive.
Visa has a cheery consensus, and it is expensive if someone is looking at the short-term outlook. But there’s every reason to believe the company will continue steadily growing for decades to come.
Some investors may be tempted to try to time the market by buying Visa on the dip. But a better approach is to simply buy the stock now without the expectation that it will soar in the near term, but with the idea that its business will steadily grow over time. That way, you are betting on the company growing into its valuation rather than waiting for a sell-off.