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The cashless economy is on the rise and every major payment processor in the payments industry wants to reap the rewards.
The many payments-related companies out there range from newer contenders like Square (NYSE: SQ) and PayPal (NASDAQ: PYPL) to the old-time payment processors like VeriFone Systems (NYSE: PAY).
Even Apple (NASDAQ: AAPL) is doing its part with Apple Pay, which is only fueling the rise of card spending.
Apple Pay is a great way to move away from cash, but it might not be the best play on this trend. Apple Pay still relies on plastic — credit cards. Apple Pay might be replacing cash, but it’s working with credit cards to do so.
A recent Accenture survey found that American consumers are now using credit cards more commonly than cash or debit cards. The percentage of people using cards every week jumped from 50% in a survey last year to 53% this year. Cash usage has fallen from 67% to 60%.
Here are the top three payments and credit-card companies; all top dividend stocks that can pad your portfolio:
Dividend Stock No. 1: Visa (NYSE: V)
Visa is one of the biggest payment processors in the world, with a $193 billion market cap. Its dividend gets overlooked a lot, yielding just 0.7%. It upped its dividend by nearly 20% last week, now paying out 16.5 cents a share. Visa has upped its dividend for seven straight years.
The major payments player also has a focus on buybacks. Visa plans to spend three-to-one on buybacks versus dividend; look for new developments in this regard this week. And management is changing, signaling a new era for the company. Visa’s CEO stepped down last week and company has brought in a former president of American Express (NYSE: AXP) to run the company.
Dividend Stock No. 2: Capital One (NYSE: COF)
Capital One is another major credit-card company, offering a 2.2% dividend yield. It’s upped its dividend for three straight years and is paying out just 20% of its earnings via dividends. Capital One spent 10% of its market cap on dividends last year.
With its stock trading at 10 times earnings, Capital One is the cheapest credit-card company around. The company’s business is more than just credit cards; it operates as a bank as well. It can cross-sell its various products, from both consumer and commercial banking products. That diversity is a strength.
Capital One does have exposure to the subprime industry, which has helped keep the stock flat over the last six months. Still, Capital One has been making a real push to enhance its credit-card rewards programs, helping give it some competitive advantages. It’s now spending more than American Express on its rewards programs.
Dividend Stock No. 3: Synchrony Financial (NYSE: SYF)
Synchrony is a dividend stock that pays a 1.9% dividend yield. It isn’t a typical credit-card company; it focuses on private-label credit cards for retailers. The company was spun off from General Electric (NYSE: GE) in 2014.
Trading at 10 times earnings, Synchrony is also attractive from a valuation perspective. Shares have fallen 10% in 2016 after the company announced more possible charge-offs. However, its private-label cards business is still growing nicely. Synchrony owns over 40% of the market share in the private-label cards business; it benefits from partnerships with Amazon.com (NASDAQ: AMZN).
The other beauty of the Synchrony credit-card portfolio is that its annual interest rates on cards are higher than average. Its average rate is upwards of 20%, compared to the 14% that companies like Capital One collect.
The field of payments and credit-card companies is crowded with contenders, so picking the best can be a headache. But when it comes to these payments companies, bigger can be better. These three stocks, all sporting attractive dividends, are among the most promising players in the payments industry and could help pad your portfolio.