No income investor buys shares of a dividend-paying company with the expectation that it will suspend its distributions at some point. Rather, dividend investors want these payouts to persist and grow for as long as possible – preferably forever. Unfortunately, many companies will have to resort to dividend cuts at some point due to business challenges.
In my opinion, however Visa (NYSE:V) And Novartis (NYSE: NVS) It seems likely that this future will be avoided, and both are worth investing in and holding on to forever. Let’s look at both.
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Visa, a leading payment network company, has an excellent track record in dividends. It has been paying dividends since 2008, when it went public, and has increased its payouts every year.
Visa can afford it: it generates consistent and growing revenues, profits and free cash flow. The payment network helps facilitate hundreds of millions of credit card transactions every day, with the company receiving a small portion of each transaction. The activities also generate excellent margins. The company’s gross margins are generally around 80%, while it typically earns about $0.50 for every dollar of sales.
That level of profitability is rare for a company as big as Visa, but it’s no coincidence. Visa’s payment network is already in place. Additional transactions add little cost, resulting in strong margins.
Furthermore, Visa’s ecosystem of banks, consumers who carry credit cards bearing its logo, and businesses that accept those cards, is such that it becomes increasingly valuable as it grows, making it a natural example of the network effect. Visa has few direct competitors to speak of, and the company is also not allowing the increased digitalization of payments to challenge its dominance.
The company has adapted its operations to the changing nature of the world financial sector. Finally, it should still have plenty of growth opportunities, still executing trillions of dollars of transactions outside the scope of the types of transactions supported by Visa’s network. The continued movement of cash and digitalization of payments will give the company a powerful tailwind in the long term.
Visa is well positioned to deliver excellent returns and consistent dividend growth.
There is always a high demand for essential medicines of the type that Novartis offers. The company has long been active in the production of medicines and its portfolio includes many ‘blockbusters’: medicines that generate annual sales of more than $1 billion. It routinely develops newer products to replace those that are losing sales due to patent expirations and competition.
