# Visa Inc. (NYSE:V)

## Dividend Discount Model (DDM)

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Dividends are the cleanest and most straightforward measure of cash flow because these are clearly cash flows that go directly to the investor.

### Intrinsic Stock Value (Valuation Summary)

Visa Inc., dividends per share (DPS) forecast

US\$

Year Value DPSt or Terminal value (TVt) Calculation Present value at 12.85%
0 DPS01 1.28
1 DPS1 1.55 = 1.28 × (1 + 21.42%) 1.38
2 DPS2 1.85 = 1.55 × (1 + 19.10%) 1.45
3 DPS3 2.16 = 1.85 × (1 + 16.77%) 1.50
4 DPS4 2.47 = 2.16 × (1 + 14.45%) 1.53
5 DPS5 2.77 = 2.47 × (1 + 12.13%) 1.52
5 Terminal value (TV5) 431.32 = 2.77 × (1 + 12.13%) ÷ (12.85%12.13%) 235.64
Intrinsic value of Visa Inc. common stock (per share) \$243.01
Current share price \$199.03

Based on: 10-K (reporting date: 2021-09-30).

1 DPS0 = Sum of the last year dividends per share of Visa Inc. common stock. See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

### Required Rate of Return (r)

 Assumptions Rate of return on LT Treasury Composite1 RF 3.12% Expected rate of return on market portfolio2 E(RM) 13.11% Systematic risk of Visa Inc. common stock βV 0.97 Required rate of return on Visa Inc. common stock3 rV 12.85%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

3 rV = RF + βV [E(RM) – RF]
= 3.12% + 0.97 [13.11%3.12%]
= 12.85%

### Dividend Growth Rate (g)

#### Dividend growth rate (g) implied by PRAT model

Visa Inc., PRAT model

Average Sep 30, 2021 Sep 30, 2020 Sep 30, 2019 Sep 30, 2018 Sep 30, 2017 Sep 30, 2016
Selected Financial Data (US\$ in millions)
Cash dividends declared and paid 2,798  2,664  2,269  1,918  1,579  1,350
Net income 12,311  10,866  12,080  10,301  6,699  5,991
Net revenues 24,105  21,846  22,977  20,609  18,358  15,082
Total assets 82,896  80,919  72,574  69,225  67,977  64,035
Equity 37,589  36,210  34,684  34,006  32,760  32,912
Financial Ratios
Retention rate1 0.77 0.75 0.81 0.81 0.76 0.77
Profit margin2 51.07% 49.74% 52.57% 49.98% 36.49% 39.72%
Asset turnover3 0.29 0.27 0.32 0.30 0.27 0.24
Financial leverage4 2.21 2.23 2.09 2.04 2.08 1.95
Averages
Retention rate 0.78
Profit margin 46.60%
Asset turnover 0.28
Financial leverage 2.10

Dividend growth rate (g)5 21.42%

Based on: 10-K (reporting date: 2021-09-30), 10-K (reporting date: 2020-09-30), 10-K (reporting date: 2019-09-30), 10-K (reporting date: 2018-09-30), 10-K (reporting date: 2017-09-30), 10-K (reporting date: 2016-09-30).

2021 Calculations

1 Retention rate = (Net income – Cash dividends declared and paid) ÷ Net income
= (12,3112,798) ÷ 12,311
= 0.77

2 Profit margin = 100 × Net income ÷ Net revenues
= 100 × 12,311 ÷ 24,105
= 51.07%

3 Asset turnover = Net revenues ÷ Total assets
= 24,105 ÷ 82,896
= 0.29

4 Financial leverage = Total assets ÷ Equity
= 82,896 ÷ 37,589
= 2.21

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.78 × 46.60% × 0.28 × 2.10
= 21.42%

#### Dividend growth rate (g) implied by Gordon growth model

g = 100 × (P0 × rD0) ÷ (P0 + D0)
= 100 × (\$199.03 × 12.85%\$1.28) ÷ (\$199.03 + \$1.28)
= 12.13%

where:
P0 = current price of share of Visa Inc. common stock
D0 = the last year dividends per share of Visa Inc. common stock
r = required rate of return on Visa Inc. common stock

#### Dividend growth rate (g) forecast

Visa Inc., H-model

Year Value gt
1 g1 21.42%
2 g2 19.10%
3 g3 16.77%
4 g4 14.45%
5 and thereafter g5 12.13%

where:
g1 is implied by PRAT model
g5 is implied by Gordon growth model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= 21.42% + (12.13%21.42%) × (2 – 1) ÷ (5 – 1)
= 19.10%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 21.42% + (12.13%21.42%) × (3 – 1) ÷ (5 – 1)
= 16.77%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 21.42% + (12.13%21.42%) × (4 – 1) ÷ (5 – 1)
= 14.45%