Is Visa a millionaire generator?

Getting rich in stocks doesn’t have to mean hitting home runs or going big on lottery-like bets. Sometimes the next one Amazon it’s… amazon.

One mistake I see many investors make is underestimating how long a winning stock can have on track. Take payments giant Visa (V 1.91%)for example; the company is a bona fide millionaire manufacturer. The stock has generated over 2,000% total returns since going public in 2008. That’s enough to turn a $50,000 investment into over $1 million.

Investors who want to replicate that success don’t need to take unnecessary risks by investing in speculative, unproven companies — buy and own Visa stock.

Here are three reasons why Visa still has enough long-term upside to make more millionaires out of patient investors.

1. Growth tailwind in the modern economy

Is there a company better positioned for reliable, long-term growth than Visa? Not sure if there is. As a payment network, Visa connects merchants with financial institutions so that money flows when you swipe a Visa-branded card to pay for something. The company charges a small fee, a percentage of the transaction, for this service.

Visa has grown (and will continue to grow) for two key reasons. First, consumers around the world are moving away from cash. According to PwC estimates, cashless payments are on track to grow by more than 60% between 2025 and 2030.

Traditional payment cards (the kind you swipe) may eventually become obsolete, but Visa keeps up with innovation. The company recently announced flexible credentials, allowing users to access multiple payment products with a single ID. Innovation will be essential for Visa to protect its market share as the world leader in payments.

Second, Visa is the dream business for investors who believe that America’s fiscal policies will continue to create inflation over the long term. The US has continuously run a fiscal deficit; it is not the only driver behind inflation, but it contributes to it.

Rising prices may hurt consumers and businesses, but Visa could benefit from inflation. Its percentage-based fees would only increase as the average transaction grows in size. As long as inflation doesn’t stifle spending enough to affect total payment volume, Visa will grow as prices rise in the economy.

2. Cash flow to enhance return on investment

Visa is a very profitable business; its payment network does not require much investment, so it becomes more and more profitable as more people use it. You can see that Visa has converted more of its revenue into free cash flow over time:

V Free Cash Flow Data (% of Annual Revenue) by YCharts

The company uses all this money to pay a dividend and buy back shares. Dividends are the return on investment in the form of cash, all without having to sell your Visa shares. The company has increased its dividend for 16 consecutive years; shareholders received just over $0.10 per share in 2008. This year, Visa will pay investors $2.08 for each share they own!

Meanwhile, Visa has pumped billions of dollars into share reductions, which boost earnings per share and generally help the stock price rise over time. Visa’s shares outstanding have fallen 21% in the past decade alone.

Visa’s ability to buy back its shares and simultaneously pay a generous dividend has contributed significantly to its outstanding return on investment. There’s no reason they can’t continue. Visa’s dividend payout ratio is still just 22%, and the company’s cash flow continues to grow as revenues grow.

3. Today’s valuation is the fair price

Winning stocks don’t often come cheap, but Visa can be had for a reasonable price today. The stock trades at a forward P/E of 27.

Some might argue that Visa, worth nearly $500 billion today, is getting too big to provide millionaire total revenue. However, I don’t see it that way.

Analysts believe that Visa will increase revenues by more than 14% annually in the long term. Double-digit growth in global digital payments will probably have a lot to do with it. Additionally, share buybacks should continue as Visa generates more cash than it needs and the dividend payout ratio remains low. In other words, Visa should continue doing what it has already done for over a decade.

Even if the stock hangs at this lower valuation forever, earnings growth and the dividend alone should generate around 15% total annual returns for investors, enough to double their investment every five years. It won’t happen overnight, but it makes you very rich if you’re patient enough.