With the recent Federal Reserve rate cuts, investors are eyeing opportunities in the financial sector, particularly those tied to dividend-paying stocks. In this context, stocks like Visa Inc. (V), Mastercard Incorporated (MA), and American Express Company (AXP) are worth considering. These companies have a history of consistent dividend payouts, positioning them as stable options for investors looking to capitalize on the rate cuts.
Traditionally, financial companies thrive in higher interest rate environments, as they can boost their interest income. However, rate cuts like the recent 50 basis points drop can still offer advantages for financial stocks, particularly those with solid dividend yields. Lower rates often give banks and financial institutions more liquidity, which supports lending activities and allows them to maintain or even raise their dividend payouts.
For investors, this could mean reliable income streams when other traditional sources of income, such as bonds, might not offer the same returns. Moreover, the financial services market is anticipated to reach $44.93 trillion by 2028, exhibiting a CAGR of 7.6%, further strengthening the appeal of dividend-paying stocks in this space.
Given these favorable trends, let’s look at the fundamentals of the three Consumer Financial Services stock picks, starting with number 3.
Stock #3: Visa Inc. (V)
V is a leading payment technology company that facilitates digital payments among consumers, merchants, financial institutions, businesses, strategic partners, and government entities. The company offers its products and services under Visa, Visa Electron, Interlink, VPAY, and PLUS brands.
On September 3, the company paid its shareholders a quarterly dividend of $0.52 per common stock. With 15 years of consecutive dividend growth, V pays an annual dividend of $2.08, which translates to a yield of 0.73% at the current share price. Its four-year average dividend yield is 0.68%. Moreover, its dividend payouts have increased at a CAGR of 17.6% over the past three years.
On July 9, V and HSBC Holdings plc (HSBC) collaborated to develop Zing, HSBC’s international payments app. With V’s technological support solutions, Currencycloud and Tink, a single point of contact delivering a multi-currency wallet and multiple methods to top-up an account, was made possible in the Zing app.
V’s net revenue for the third quarter (ended June 30, 2024) increased 9.6% year-over-year to $8.90 billion. Its operating income amounted to $5.94 billion, indicating an 18.2% growth from the prior year quarter. The company’s non-GAAP net income came in at $4.91 billion and $2.42 per share, up 9.1% and 12% year-over-year, respectively.
Analysts expect V’s revenue for the fourth quarter (ending September 2024) to increase 10.1% year-over-year to $9.48 billion, while its EPS for the same period is expected to grow 10.6% from the prior year to $2.58. Moreover, it topped the consensus EPS estimates in each of the trailing four quarters, which is excellent.
Over the past year, the stock has surged 17.7%, closing the last trading session at $284.77.
V’s POWR Ratings reflect this robust outlook. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
V has a B grade for Momentum, Stability, and Quality. It is ranked #14 out of 46 stocks in the Consumer Financial Services industry. Click here to see the additional ratings for V (Growth, Value, and Sentiment).
Stock #2: American Express Company (AXP)
AXP operates as a global integrated payments company that provides customers access to products, insights, and experiences that build a business. The company operates through four segments: U.S. Consumer Services; Commercial Services; International Card Services; and Global Merchant & Network Services.
On August 14, AXP announced plans to open a new Centurion® Lounge at Salt Lake City International Airport (SLC). The lounge will be 16,000 square feet, and premium amenities will be available to its Card Members.
On August 9, demonstrating its commitment to returning value to shareholders, the company paid a quarterly dividend of $0.70 per share. AXP pays an annual dividend of $2.80, which translates to a yield of 1.04% at the current share price. Its four-year average dividend yield is 1.22%. Also, the company’s dividend payouts have increased at a CAGR of 14.8% over the past three years.
During the second quarter that ended on June 30, 2024, AXP’s total revenues net of interest expense increased 8.5% year-over-year to $16.33 billion, primarily driven by higher net interest income, increased Card member spending, and strong card fees. In addition, its net income amounted to $3.02 billion and $4.15 per share, reflecting an increase of 38.7% and 43.6% year-over-year, respectively.
Street expects AXP’s revenue for the fiscal fourth quarter (ending December 2024) to increase 8.7% year-over-year to $17.17 billion. Moreover, its EPS estimate of $2.98 for the same period indicates a 13.6% year-over-year growth. In addition, it surpassed the EPS estimates in three of the trailing four quarters, which is promising.
The stock has gained 71.1% over the past year and 48.9% over the past nine months to close the last trading session at $268.99.
AXP’s bright prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
It also has a B grade for Momentum, Stability, and Sentiment. Within the same industry, it is ranked #10. Click here to see the other AXP ratings for Growth, Value, and Quality.
Stock #1: Mastercard Incorporated (MA)
MA is a technology company that provides transaction processing and other payment-related products and services worldwide. It allows users to make payments by creating a range of payment solutions and services using its brands, MasterCard; Maestro; and Cirrus, through electronic forms of payment.
On September 16, buoyed by strong financial performance, the company declared a quarterly dividend of $0.66 per share, payable on November 8, to the shareholders of record on October 9, 2024.
MA pays an annual dividend of $2.64, which translates to a yield of 0.54% at the current share price. Its four-year average dividend yield is 0.53%. Moreover, the company’s dividend payouts have increased at an impressive CAGR of 15.5% over the past five years.
For the second quarter of 2024, which ended on June 30, MA’s net revenues increased 11% year-over-year to $6.96 billion. Its operating income rose 10.4% from the year-ago value to $4.04 billion. The company’s non-GAAP net income stood at $3.34 billion, up 21.8% year-over-year, while its adjusted earnings per share amounted to $3.59, representing an increase of 24.2% from the last year.
The consensus revenue estimate of $7.26 billion for the fiscal third quarter (ending September 2024) represents an 11.1% increase year-over-year. The consensus EPS estimate of $3.73 for the same quarter indicates a 10.1% improvement year-over-year. The company has an excellent surprise history; it surpassed the consensus revenue and EPS estimates in each of the trailing four quarters.
MA shares have surged 20% over the past year and 17.5% over the past nine months to close the last trading session at $492.74.
It’s no surprise that MA has an overall rating of B, equating to a Buy in our POWR Ratings system. It has a B grade for Momentum, Stability, and Quality. Out of 46 stocks in the Consumer Financial Services industry, MA is ranked #8.
Beyond what is stated above, we’ve also rated MA for Growth, Value, and Sentiment. Get all MA ratings here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
V shares closed at $284.77 on Friday, down $-0.47 (-0.16%). Year-to-date, V has gained 10.01%, versus a 20.31% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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