Visa Stock Is Great. Here's Why You Shouldn't Buy It.

Visa (NYSE: V) is a well-run company. It is understandable that many investors might want to own the stock. But even great companies aren't appropriate for every investor, and that's definitely true of Visa.

Here's a look at why Visa stock is interesting today and why, despite its attractiveness as an investment, some investors might want to avoid it just the same.

Visa is great in many ways

One of the biggest reasons to like Visa is that it is an industry leader in a growing industry. Payment processing is increasingly important as consumers move away from cash-based transitions. With an established technology, a trusted and widely known brand, and the size to continue to invest in both technology and industry reach, it would be hard for an upstart to unseat Visa.

Image source: Getty Images.

To be fair, despite being a financial giant, Visa shares its dominance with Mastercard (NYSE: MA) creating an effective duopoly. However, that hasn't stopped Visa from putting up some pretty incredible growth numbers.

For example, over the past decade, Visa has expanded its top line by 10% a year on an annualized basis. That translated into 15% annualized earnings growth over the same span. Those are both very impressive figures.

Another positive is that Visa has made sure to reward investors via regular dividend increases. The annual streak is up to 16 years, with an annualized rate of increase of 18% over the past decade. That rate of dividend increases is nothing short of phenomenal for any company for such an extended period of time.

But this is where some things get tricky.

Some investors will be better off avoiding Visa

Despite having an impressive dividend growth record, Visa's dividend yield is only 0.75%. That's a very low figure and is even below the S&P 500 's miserly 1.3% average yield. That will likely be too low for many dividend investors. If you are looking to live off of the income your portfolio generates, Visa is probably not going to be a good selection for your portfolio.

V data by YCharts

That said, the yield is toward the high end of the company's historical yield range. And its price-to-sales and price-to-earnings ratios are both below their five-year averages. All three are indications that Visa's stock is attractively priced, or at the very least reasonably priced, today.

However, the stock is trading only about 5% from its all-time high, so even though key valuation metrics appear attractive, it is hard to suggest that Visa isn't a popular stock with investors. In fact, it isn't uncommon for the stock to experience 15% or greater drawdowns. So the current price, while attractive in some ways, perhaps isn't going to lure in die-hard value investors .

V data by YCharts

There are two more negatives to consider here that relate more to the business.

First, there is notable headline risk with Visa. Because of the effective duopoly it benefits from, it regularly faces pushback from customers and regulators around its business practices. This can lead to court battles, legal fees, and government fines. It is highly unlikely that this aspect of Visa's business is going to change anytime soon, so if you like boring companies that stay out of the news, Visa shouldn't be in your portfolio.

Second, Visa's business is driven by transaction volume. The more people use its cards, the more money it makes. But transaction volume falls during recessions . Although Visa stock was not publicly traded during the Great Recession, the stock fell off a cliff during the recession that occurred in the early days of the coronavirus pandemic.

And for good reason. Earnings fell 22% year over year in the third quarter of 2020 and 23% in the fourth quarter of that year. Earnings recovered, for sure, but the impact of a recession shouldn't be overlooked if you are a conservative investor because steep earnings declines often lead to steep share price declines. That could make sleeping well at night a lot harder for a lot of people.

Make sure you want to own Visa

There's nothing wrong with buying Visa stock. In fact, given historical valuation trends, it looks like it might be trading at a reasonably attractive price point. However, every investment comes with trade-offs, and that's no different here. If you are looking for income, prefer deep-value stocks, or have a problem with headline and economic risks, it's probably best if you don't buy Visa stock.

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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Mastercard and Visa. The Motley Fool recommends the following options: long January 2025 $370 calls on Mastercard and short January 2025 $380 calls on Mastercard. The Motley Fool has a disclosure policy .