Mastercard Inc.: Is MA Stock a Top Dividend Growth Investment?
Is There More Upside Ahead in MA Stock?
Shares of Mastercard Inc. (NYSE:MA)are up 214% over the past five years–market-beating returns for that period. Is it possible for the global payment solutions company to continue this trend for another five years?
Let’s take a deeper look into the company.
A Global Licensing Company
As a provider of credit, debit, and electronic payment services to more than 20,000 financial institutions, Mastercard is a mainstay of the financial sector. The majority of the company’s revenue comes from licensing fees from the financial institutions that offer the company’s flagship credit card service. The end user acquires their card through their bank, branded by the institution but using Mastercard technology.
And this is where the revenue division gets interesting. Each time the credit card is used, both Mastercard and the financial partner are paid a fee. And if the card owner is unable to pay back the borrowed funds, this risk–and the negative financial impact–is laid solely on the bank. All Mastercard has to worry about is whether the card is being used so it gets paid, lowering the company’s risk dramatically.
One proven correlation to a rising stock price return is a rising dividend, which shows the markets that revenue is growing and a higher payout is sustainable. This makes investors gradually more aware of the stock and leaves them wanting their investment portfolio to benefit. In the case of MA stock, the dividend is up 266% over the past five years.
Mastercard has also engaged in share buybacks, with the current program worth $4.0 billion. The benefit here is that there is consistent buying of the shares, which results in the stock price being supported higher. (Source: “Mastercard Board of Directors Announces Increase in Quarterly Dividend and $4 Billion Share Repurchase Program,” December 6, 2016.)
It is quite possible for this trend to continue for two reasons. First, the dividend only represents about 20% of the earnings, so the company has a lot of surplus of cash. Second is the growth opportunities available in the marketplace. For instance, Mastercard product usage is currently low in India, but with the increasing presence of technology in the country, there could be a major shift away from cash incoming.
Bottom Line on MA Stock
It is difficult to determine if MA stock will trade higher in the future, but the company’s actions do show a willingness to reward shareholders further. And since Mastercard has a global network, there are plenty of opportunities that could provide steady, growing returns and new market exposure.
MA stock is paying a dividend yield of 0.66%, based on the price of $132.72. This may not sound like a yield to get excited about, but the current trend of dividend growth means the potential for a higher yield. The same could have been said five years ago, and not investing then would have resulted in missing out on market-beating returns.