Dividend investing comes in many flavors, but the general goal of the strategy is to own shares of high-quality companies that will grow over time, providing a combination of share price appreciation and a growing dividend income. Dividends are almost always a cash expense for companies, so it's a badge of merit when a company can regularly increase its payouts.
Visa(NYSE: V) and Bank of America(NYSE: BAC) are financial sector juggernauts. One company operates the world's second-largest payments network (just behind China's UnionPay), while the other is America's second-largest bank, with over $3.2 trillion in assets. Both companies pay dividends, and have raised them for at least 10 consecutive years.
But which is the better dividend stock to buy now?
Meet the contenders
Visa and Bank of America are massive, consumer-facing businesses, so you've almost certainly heard of both.
Open your wallet, and you'll probably find a Visa-branded credit or debit card. It operates the world's largest payment processing network (when excluding China). When you use a Visa-branded payment card or digital wallet, its network securely communicates between the merchant and your financial institution, verifying the funds and authorizing the transaction. Visa charges a small fee to the merchant for this service. The company's network processes trillions of dollars in transactions annually, resulting in more than $36 billion in revenue and $20 billion in free cash flow over the past four quarters.
If you drive through any notable town or city in much of the U.S., you'll likely find a Bank of America branch, or at least one of its ATMs. However, the bank's business roots go far deeper. As one of the world's largest banks, it has its fingers in the financial markets, retail and commercial banking, residential and commercial real estate, and more. Bank of America has thrived as consumers and businesses borrow more. The company generated over $101 billion in revenue and $27 billion in net income over the past year.
Here is how these dividend stocks stack up
Dividend stocks must deliver in a few key areas. Investors tend to prefer reliable and growing payouts. Additionally, many are focused on the longer term since those who own dividend stocks benefit heavily when they hold them for long periods that allow compound growth to work its magic. Therefore, it's a strong positive for such companies to have opportunities to foster growth that will allow them to keep paying and increasing their dividends.
At first glance, Visa and Bank of America seem to have comparable dividend metrics.
Metric
Visa
Bank of America
Current dividend yield
0.7%
2.5%
Five-year compound annual dividend growth rate
15.4%
8.7%
Dividend payout ratio
20.8%
28.2%
Sources: Data gathered from various public sources including Portfolio Insight, LLC, YCharts, as well as company reports.
Both companies have conservative dividend payout ratios (as a percentage of their 2025 earnings estimates). Visa has been growing its payout faster, but Bank of America offers a far higher starting yield and has raised its dividend faster than inflation over the past five years. Based on the numbers alone, one could make a sound argument for investing in either stock, depending on whether they preferred a higher initial yield or a higher growth rate.
Lastly, analysts are similarly optimistic about each company's growth prospects, estimating that both companies will grow their earnings at annualized rates of around 12% over the long term.
Which is the better dividend stock?
I'll admit, this was a far closer contest than I initially expected. However, Visa's business model gives it the edge.
You see, Visa doesn't take on any credit risk. It's a financial toll booth, collecting fees as the global economy uses its network. Meanwhile, Bank of America is in the lending business. That can be lucrative when credit markets are healthy, but costly when conditions go south.
Visa's business may slow during a downturn or recession if consumer spending drops, but Bank of America is far more vulnerable to economic slowdowns. Bank of America's stock has delivered total returns of about 2,730% since the early 1970s, and as the chart below suggests, a big reason those returns were not higher is because it can take the company years to recover from the impacts of recessions and financial crises.
Visa didn't go public until 2008, but it has generated nearly the same total returns in 17 years that it took Bank of America over five decades to produce, and the payment processor did it without as much volatility.
Ultimately, investing in the global transition from cash to payment cards and digital wallets is a more attractive growth trend than lending. Visa's track record and lack of credit exposure make it the better dividend stock for your money.
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Bank of America is an advertising partner of Motley Fool Money. Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bank of America and Visa. The Motley Fool has a disclosure policy.
