Those of us who grew up in the tail end of the cash period in the U.S. (when you paid for things in cash and not with a credit card) might have a tough time seeing this week’s idea as an essential.
But it has become exactly that… Credit cards.
Yours truly may have been one of the last converts to them. It wasn’t until about 2003 that I started using them for the bulk of my spending. And now I use my card for over 90% of my purchases. It’s just too easy!
I still write checks for some of my monthly bills. But everything else is on the card. And the trend worldwide is the same.
This week’s essential is Visa Inc. (NYSE: V).
At first glance this one seems overpriced with a P/E of 34. But believe me, it is not. It has lots of room for growth in the future – lots of growth.
Visa expects earnings to grow by 32% between this and next year. And its international numbers are incredible.
It is growing in Asia by 14% a year, 20% in Latin America and 30% a year in Central America.
That’s 30% growth a year… and Visa is expanding in 200 countries simultaneously… and it spends only about 6% of its earning power on capital spending. That’s nothing.
This is a company with no debt, no pension liabilities and no preferred stock. That’s unheard of, and it actually buys back stock and then destroys it to increase stockholder value. The stock doesn’t sit on the books as with most buybacks.
Even in an inflationary environment, which is what will sink most retired portfolios, Visa will thrive because it bases its fees on the gross sale amount. So, as prices increase, its fees increase with them.
And, even during the really tough years, 2008 and 2009, it grew the dividend by 109% and earnings by 29%. It doesn’t get any better than that!
Visa’s response to inflation and increasing its earnings and dividends during two of the toughest years in history alone qualify it as a very good candidate for a retirement portfolio.
The downside: It has only a 0.8% dividend. So this is not an income and growth play. I see this as one to buy on weakness and stick away for a rainy day. But it is one of the best pure growth plays with the best underlying fundamentals and business plans on the market.
Visa is as essential as money in today’s world. Just charge it!