This has been an exciting year to be an investor as 2018 has started out with a bang. The market started off on a tear and has started to slide over the last few days; however, there has been one thing that has been constant. There are a lot of companies that are announcing dividend increases in 2018 after the passing of tax reform. One company that caught my eye this week was a company that so many of us use on a daily basis. Finally, I thought to myself, why not perform a stock analysis over Visa (V)?

Last week, V announced their first-quarter results. The company crushed it during the quarter. Visa announced a 9% increase in operating revenue and a 22% increase in quarterly net income (a 23% increase in adjusted earnings, a non-GAAP measure). What I liked to see was that the increase in net income wasn’t solely driven by a “one time” activity such as tax reform. In fact, the impact of tax reform was minimal on V as the remeasurement of their deferred taxes subsequent to tax reform resulted in a ($.48/share) impact and the transition tax on foreign earnings as a result of the reform resulted in a $.49/share impact. Essentially, the tax impacts offset each other. Rather, V has realized strong growth in their core business as the company saw high single-digit/low double-digit growth rates in key metrics such as payments volume, cross-border transactions, and processed transactions. All in all, this was a great earnings release for the company and V continues to show why they are one of the best in their industry.

Now, the fun part of their recent earnings release. Typically, V increases their dividend annually in October. In October 2017, the company continued their streak and increased their quarterly dividend 18.1%. A very strong increase on its own. However, last week, the company shocked us all and announced ANOTHER dividend increase. This dividend increase was not as large, as management increased their quarterly dividend 7.7% to $.21/share. But here is what is crazy to think about. At this time last year, V shareholders were receiving a $.165/share increase in their quarterly dividend. In just 12 months, lucky V shareholders have seen their dividend increase 27.3%! Very strong growth.

On top of it, V also authorized a $7b share buyback program. With this increase, the company is not authorized to purchase up to $9.1b shares of V stock. At their current share prices, V could repurchase 75.26 million shares. This represents about 4% of their current outstanding shares. Since V continues to generate a lot of cash from their operations, management has a lot of different tools to deliver value to shareholders throughout 2018.

There was a lot of great news for V this quarter. Since I do not own shares of V, I love reading about investing in companies that grow their dividend and return capital to shareholders. However, I do not dare invest in a company without running it through a stock screen. But today, there is going to be a twist. Typically, the two of us focus on identifying undervalued dividend stocks. Currently, V is trading at a premium to the market and I’m sure many of you will quickly state in the comment section that the market premium is deserved, based on the economic moat they have built and the strong growth in their dividend. I’m willing to consider investing in V even if the company is trading at a premium and will monitor their stock price in this potential downturn to see if the price premium falls.

So today, I am going to compare V to their arch-rival in the credit card processing industry, Mastercard (NYSE:MA), to determine if V is trading at a discount compared to their competitor. Let’s dive into the numbers!

1.) Dividend Yield: While I typically like to invest in companies that have a yield in line or exceeding the market, I know that is not the case with V. The company pays a low dividend, which is fine considering the company’s appreciation and their very strong double-digit dividend growth rate. V’s current dividend yield is .69%. Interestingly though, their dividend yield is higher than their rival's. I was not expecting that.

2.) Payout Ratio: We use a 60% payout ratio threshold for stocks to pass our screener. V and MA are both well below our 60% threshold, indicating that the companies have plenty of room to grow their dividend going forward (especially considering V’s forecasted EPS growth).

3.) Dividend Growth Rate and History: I’ve already discussed V’s recent dividend increases earlier in the article. I mentioned that a shareholder’s dividend has increased 27% over the last 12 months. While I thought this was insane earlier, this is actually par for the course for V shareholders as the company has a five-year average dividend growth rate of 20%. The company paid their first dividend in 2008 and has increased the dividend annually since inception. The company is slowly, but surely, working their way towards becoming a Dividend Aristocrat. Compared to MA, V has a stronger average dividend growth rate. MA has been paying a dividend longer, as the company started paying a dividend in 2006. But MA did not start increasing their dividend annually until 2012. So their consecutive annual dividend increase streak is shorter.

4.) Price to Earnings (P/E) Ratio: Again, I know that both companies in the credit card industry are trading above the S&P 500. So I altered this metric to pin the two companies against one another to determine if one company was trading at a discount compared to the other. The results are close, but V’s P/E ratio is slightly lower than MA’s. Not by a significant margin, but V is trading at a lower multiple than their competitor.

Dividend Stock Analysis Conclusion

This was a very interesting stock analysis for me. V’s second dividend increase in less than a year is amazing and the company continues to return impressive amounts of capital back to shareholders. From this perspective, and an operations perspective, there is a lot to like. And based on this analysis, I like the metrics of V compared to their competitor. V has a strong dividend growth rate, a longer dividend growth streak, and is trading at a lower multiple. Honestly, I entered this stock analysis thinking that V was trading at a large premium compared to the broader market. I was a little shocked and relieved that their multiple was closer to the market than I was expecting (low to mid 20X). While V is still a little too expensive for my liking, they are sitting atop of my watch list. If the company’s stock price and P/E ratio for the company continue to fall, I may initiate a position in the company. I would consider starting a position if the multiple falls to the mid-20X range, even if it is trading at a premium to the market.