V

Visa Inc.

180.06
USD
0.49%
180.06
USD
0.49%
174.83 236.96
52 weeks
52 weeks

Mkt Cap 303.88B

Shares Out 1.69B

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2 Safe Dividend Stocks to Beat Inflation

The Consumer Price Index (CPI) surged 8.5% higher on a year-over-year basis in July. The increase came in below analysts' expectations of an 8.7% increase and was 0.6 percentage points below the CPI reading for June. Yet inflation is still near a four-decade high. What is an investor to do to preserve his or her purchasing power? The basic answer is to buy and hold quality companies in booming industries. You can also improve your chances by focusing on safe dividend stocks that perform well on price appreciation. Let's take a look at two stocks that arguably fit these requirements and might make great additions to an investment portfolio. 1. Visa With nearly 4 billion credit and debit cards in circulation as of March and a market capitalization of $434 billion, Visa (NYSE: V) is the largest publicly traded payments company in the world. And it's not even that close: The next biggest peer is Mastercard, which had 2.5 billion credit or debit cards in circulation as of March and a market cap of $340 billion. Over the past 10 years, Visa has delivered blistering 21.5% annualized returns. This would have been enough to parlay a $10,000 investment into nearly $70,000. For context, these returns are nearly 10 times the average annual inflation rate posted in the past decade. And that's still more than double the currently elevated inflation rate. How was this inflation-crushing performance possible? Visa's business model is very similar to that of a toll-booth operator. The company receives a small percentage of the gross dollar volume for transactions on its network. It also collects a fixed fee on each transaction completed by its payment infrastructure. As long as inflation throughout the world doesn't escalate to hyperinflation and led to significantly fewer transactions, higher prices actually act as a catalyst to boost the company's gross dollar volume. This results in both higher revenue and non-GAAP (adjusted) diluted earnings per share (EPS). Thanks to the trends of cash-alternative payments and e-commerce, Visa has plenty of room for growth moving forward. That's exactly why analysts believe that the company's adjusted diluted EPS will increase at 18.2% annually over the next five years. Visa's current 0.7% dividend yield is well below the 1.5% average yield of stocks in the S&P 500. But part of the reason for that is the stock's strong price appreciation tends to dampen the yield rate. Worries about that low rate can also be eased when you notice that another metric, the dividend payout ratio, is hovering around 20.9%. That suggests there is plenty of room for dividend growth. Visa's double-digit annual dividend growth potential should partially compensate for its lower starting yield. Visa's stock is trading at a bit of a premium with a forward price-to-earnings (P/E) ratio of 25.1. This is considerably higher than the credit services industry's average forward P/E ratio of 15.9. However, Visa's business model is much lower risk than most of its peers since it doesn't extend credit to customers. The stock's premium price is reasonable considering the company's potential to build massive wealth for shareholders over the next decade. 2. UnitedHealth Group If you thought Visa had an advantage over its peers, it pales in comparison to UnitedHealth Group's (NYSE: UNH) tremendous advantage over its competitors. The company's $499 billion market cap is more than those of the five next biggest health insurers combined. Unsurprisingly, this unparalleled scale will position UnitedHealth Group to profit from favorable global trends more than its competitors. The world is growing larger and older -- not to mention that medical care costs are rising. This will lead more people around the world to rely on health insurers like UnitedHealth Group to hedge against rising costs. And it's why the market research company Global Market Insights is forecasting that the global health insurance industry will grow 4.6% each year, from $2.8 trillion in 2020 to $3.9 trillion in 2027. UnitedHealth Group should be able to capture an outsized share of that forecasted industry gain, and it shouldn't have any difficulty passing on premium hikes to its customers to combat the forecast rising costs. With a net margin of 6.3% on its $160.5 billion in revenue through the first half of 2022, the company is quite profitable for a health insurer. Due to the promising industry growth outlook, analysts are predicting that UnitedHealth Group will generate 14.4% annual adjusted diluted EPS growth for the next five years. In the last 10 years, UnitedHealth Group has produced 28.4% annual total returns. For context, this absolutely torched the average annual inflation rate over the last 10 years. And it would have turned a $10,000 investment into $121,000 with dividends reinvested. Given that its dividend payout ratio will be approximately 29% in 2022, UnitedHealth Group is safe to initiate many years of double-digit annual dividend growth in its future. That makes up for the low starting yield of 1.1%, which is also somewhat lower than the S&P 500 average because of significant stock price growth (up 8.2% year to date in a down market). The stock's forward P/E ratio of 21.4 isn't cheap, considering that the healthcare plan industry's average forward P/E ratio is 16.6. But quality comes at a price, and this isn't really an excessive valuation for a gem like UnitedHealth Group either. 10 stocks we like better than Visa When our award-winning analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.* They just revealed what they believe are the ten best stocks for investors to buy right now... and Visa wasn't one of them! That's right -- they think these 10 stocks are even better buys. *Stock Advisor returns as of August 11, 2022 Kody Kester has positions in Mastercard, UnitedHealth Group, and Visa. The Motley Fool has positions in and recommends Mastercard and Visa. The Motley Fool recommends UnitedHealth Group. The Motley Fool has a disclosure policy. The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc. Today’s Big Picture Asia-Pacific equity indexes ended today’s session down across the board. India’s Sensex ended the day essentially flat, down 0.06%, China’s Shanghai Composite and Australia’s ASX All Ordinaries declined 0.54% and 0.55%, respectively while Japan’s Nikkei fell 0.65%, Taiwan’s TAIEX dropped 0.74% and South Korea’s KOSPI declined 0.90%. Hong Kong’s Hang Seng led the way, down 1.96% on a broad selloff led by Health Technology and Health Services names while Transportation and Communications sectors provided the only relief. By mid-day trading, major European equity indices are down across the board and U.S. futures point to a positive open later this morning. At 8:30 AM ET, the much anticipated July Consumer Price Index (CPI) report was released: The headline figure for the month was expected to fall to 8.7% from June’s blistering 9.1% reading with core CPI that excludes food and energy ticking higher to 6.1% in July vs. 6.0% the prior month. The actual numbers show that inflation hit 8.5%, and core inflation was 5.9%. With the national average retail price for a gallon of gas falling through late June and July from its June 14 high of $5.016 per gallon per data from AAA, forecasters had expected the month over month decline in the headline CPI for July. The July Employment Report also showed wage inflation ran hotter than expected during the month. Let’s also keep in mind that we will be facing a “wash, rinse, repeat” cycle when it comes to inflation data and expectations for the Fed given tomorrow’s July Producer Price Index report. Data Download International Economy Producer prices in Japan rose by 8.6% YoY in July, compared with market forecasts of 8.4% and following an upwardly revised 9.4% the prior month. While marking the 17th straight month of producer inflation, the latest reading was the softest since last December. China's annual inflation rate rose to 2.7% in July from 2.5% in June and compared with market forecasts of 2.9% but even so the July figure marked the highest reading in the last year. The country’s Producer Price Inflation figure for July eased to a 17-month low of 4.2% YoY from 6.1% the prior month and less than the market consensus of 4.8%. Annual inflation rate in Germany was confirmed at 7.5% YoY for the month of July, down slightly from June’s 7.6% reading but still above the March and April figures of 7.3%-7.4%. The annual inflation rate in Italy slowed to 7.9% YoY in July from June’s 8% reading matching expectations for the month. While energy prices declined, prices for food and transportation rose at a faster pace. Domestic Economy This morning we have the usual Wednesday weekly reports for MBA Mortgage Applications and Crude Oil Inventories from the U.S. Energy Information Administration. At 10 AM ET, Wholesale Inventories for June will be published, and the figure is expected to rise 1.9%. While investors and economists will keep more than a passing interest in those reports and data, as we discussed above, it will be the July Consumer Price Index report at 8:30 AM ET that will shape not only how the US stock market opens today, but also expectations for the Fed’s next course of monetary policy action. The U.S. Energy Information Administration (EIA) expects domestic production of crude oil, natural gas and coal will all increase next year compared with this year. It forecast US crude production rising 6.7% to an all-time annual high 12.7M bbl/day in 2023 from 11.9M bbl/day in 2022, US natural gas output climbing to 100B cubic feet (cf)/day from 97B cf/day, and US coal production inching up to 601M short tons in 2023 from an expected 599M this year. The EIA also modestly increased its 2022 average nationwide gasoline price forecast to $4.07/GALLON vs. $4.05 if called for last month. It now also sees 2023 prices at $3.59/GAL vs. its previous forecast of $3.57. Markets Stocks continued in their holding pattern waiting for the latest CPI print save for some fundamental stories pushing Technology names and small caps around. The Dow and the S&P 500 were down slightly at 0.18% and 0.42%, respectively while the Nasdaq Composite dropped 1.19% and the Russell 2000 closed down 1.46% on the day. Energy names led the way yesterday but were overpowered by Technology and Consumer Discretionary sectors. Here’s how the major market indicators stack up year-to-date: Dow Jones Industrial Average: -9.81% S&P 500: -13.51% Nasdaq Composite: -20.14% Russell 2000: -15.83% Bitcoin (BTC-USD): -52.08% Ether (ETH-USD): -55.38% Stocks to Watch Before trading kicks off, CyberArk (CYBR), Fox Corp. (FOXA), Jack in the Box (JACK), Nomad Foods (NOMD), Vita Coco (COCO), Tufin Software (TUFN), and Wendy’s (WEN) will be among the companies issuing their latest quarterly results and guidance. At 9 AM ET, Samsung (SSNLF) will hold its Galaxy Unpacked 2022 at which it is expected to introduce new Galaxy foldable smartphone models, a new Galaxy Watch, and Galaxy Buds. Shares of advertising technology platform company The Trade Desk (TTD) jumped after the company reported quarterly results that topped expectations and guided current quarter revenue above the consensus forecast. The RealReal (REAL) reported a smaller than expected bottom line loss for its June quarter as revenue for the period rose 47.2% YoY to %154.44 million, topping the $153.99 million consensus. However, the company issued downside guidance for both the current quarter and 2022. Revenue for the September quarter is now expected to be $145-$155 million vs. the $164.3 million consensus; for the full year of 2022, revenue is forecasted to be $615-$635 million vs. the $653.7 million consensus. Shares of Coinbase Global (COIN) moved lower after it reported June quarter results that missed top and bottom line expectations. Revenue for the quarter fell 63.7% YoY as Total trading volume fell 53.0% YoY and 29.8% sequentially to $217 billion. Monthly Transacting Users (MTUs) grew 2.3% YoY but fell 2.2% sequentially to 9.0 million. For the current quarter, Coinbase sees the number of MTUs trending lower sequentially and total trading volume to be lower compared to the June quarter. Shares of Sweetgreen (SG) tumbled in aftermarket trading last night after the company missed quarterly revenue expectations, lowered its 2022 forecast, announced it will lay off 5% of its workforce, and downsize to smaller offices. ChipMOS TECHNOLOGIES (IMOS) reported its July revenue was $65.1 million, a decrease of 19.4% YoY and down 7.7% MoM. Taiwan Semiconductor (TSM) reported its July revenue increased 49.9% YoY to NT$186.76 billion, which equates to a 6.2% MoM improvement. Electric vehicle subscription startup Autonomy placed a $1.2 billion order for 23K electric vehicles with 17 global automakers, including BMW (BMWYY), Canoo (GOEV), Fisker (FSR), Ford (F), General Motors (GM), Hyundai (HYMTF), Lucid Group (LCID), Mercedes-Benz (DDAIF), Polestar (PSNY), Rivian (RIVN), Stellantis (STLA), Subaru (FUJHY), Tesla (TSLA), Toyota Motor (TM), VinFast, Volvo Car (VLVOF) and Volkswagen (VLKAF). IPOs As of now, no IPOs are slated to be priced this week. Readers looking to dig more into the upcoming IPO calendar should visit Nasdaq’s Latest & Upcoming IPOs page. After Today’s Market Close Bumble (BMBL), CACI International (CACI), Coherent (COHR), Dutch Bros. (BROS), Red Robin Gourmet (RRGB), and Walt Disney (DIS) are expected to report their quarterly results after equities stop trading today. Those looking for more on which companies are reporting when, head on over to Nasdaq’s Earnings Calendar. On the Horizon Thursday, August 11 Germany: Thomson Reuters Ipsos Monthly Global Primary Consumer Sentiment Index - August US: Weekly Initial & Continuing Jobless Claims US: Producer Price Index – July US: Weekly EIA Natural Gas Inventories Friday, August 12 Japan: Thomson Reuters Ipsos Monthly Global Primary Consumer Sentiment Index - August China: China Thomson Reuters Ipsos Monthly Global Primary Consumer Sentiment Index - August Eurozone: Industrial Production - June US: Import/Export Prices – July US: University of Michigan Consumer Sentiment Index (Preliminary) – August Thought for the Day “The release date is just one day, but the record is forever.” ~ Bruce Springsteen Disclosures Tufin Software (TUFN), CyberArk (CYBR) are constituents of the Foxberry Tematica Research Cybersecurity & Data Privacy Index Canoo (GOEV), Fisker (FSR), Lucid Group (LCID), Rivian (RIVN), Tesla (TSLA), Vita Coco (COCO) are constituents of the Tematica BITA Cleaner Living Index Canoo (GOEV), Fisker (FSR), Lucid Group (LCID), Rivian (RIVN), Tesla (TSLA), Vita Coco (COCO) are constituents of the Tematica BITA Cleaner Living Sustainability Screened Index The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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