There are some stocks that just seem to get better and better. A case in point is MasterCard (NYSE: MA), the credit card giant’s board approved a $4 billion stock buyback scheme on December 6, 2016.
That buyback is on top of the 67.31% return on equity MasterCard delivered for third quarter 2016, and a .72% dividend yield for December 7, 2016, Investopedia reported. The dividend yield is based on the 19¢ divided that MasterCard shareholders received on October 5, 2016.
MasterCard’s Growing Dividend
That dividend has been going up every year for the last four years it was 16¢ in 2015, 11¢ in 2014, 6¢ in 2012, 3¢ in 2012 and 1.5¢ in 2011. That means MasterCard’s dividend has grown by 18.5 cents or 185% in just five years which is pretty good.
And guess what the board has also voted to raise the dividend another three cents. That means MasterCard is sheducled a 22¢ a share dividend to Class A common stock holders on February 9, 2017 and class B stock holders on January 9. Investopedia reported.
Therefore MasterCard’s dividend will have increased by more than 200% when it is paid next year. That is not bad for a generic credit card stock that a lot of investors have been investing.
MasterCard Plans to Buy Back $5.3 billion worth stock
To add icing to the cake this is the second stock buyback program, MasterCard has launched in a year. Last year MasterCard started another $4 billion buyback program, but only $2.7 billion that money has been spent.
That means MasterCard is scheduled to buy back $5.3 billion worth of stock in the months ahead. That should have quite an impact because MasterCard had a market capitalization of $114.56 billion on December 7, 2016.
All of this makes MasterCard a tremendous growth and income stock. Yet skeptical value investors should ask the age question here: is MasterCard making money? After all it is financial company, which puts off a lot of investors.
MasterCard is making a Lot of Money
The answer to the all-important question is that MasterCard is making a lot of money so the dividend is sustainable. MasterCard reported a net income of $4.016 billion on September 30, 2016.
That net income grew by $297 million over the course of the year that ended on that date; rising from $3.719 billion in September 2015 to $4.016 billion a year later. More importantly that net income has been growing fairly steadily for several years, it was just $1.906 billion in December 2011.
Beyond the net income, MasterCard reported a profit margin of 41.11% and a free cash flow of $1.32 billion on September 30, 2016. The company also reported generating $4.531 billion cash from operations during the third quarter.
All that gave MasterCard a lot of float in the form of $6.979 billion in cash and short term investments and assets of $17.32 billion. That gives the board a lot more money for share buybacks and dividend increases in the future if it wants.
MasterCard’s Revenue Keeps Growing and Growing
There is one final reason to buy MasterCard stock, the company’s revenue keeps growing and growing.
During third quarter 2016 MasterCard added $260 million in revenue. Its overall revenues rose from $10.19 billion in June to $10.54 billion in September. Over the course of the year that ended on September 30, 2016 MasterCard added $979 million in revenues rising from $9.561 billion in September 2015 to $10.54 billion in 2016.
That revenue growth is slow and steady but it appears sustainable. During the past four years MasterCard added $3.32 billion in revenues. Its revenues increased from $7.224 billion in September 2012 to $10.54 billion in September 2016. All this gives the company the resources for more buybacks and revenue increases.
The Future Looks Bright for MasterCard
Beyond this the future looks very bright for MasterCard because of a number of escalating trends. These trends include:
- The frantic growth of online retail, in which most payments are made with credit or debit card balances. The popularity of Amazon; which does not accept PayPal, is a major boon for both MasterCard and Visa (NYSE: VA).
- The growing popularity of payment apps like Apple Pay and Android Pay which make it easy to pay with a credit card balance. Microsoft Wallet; which accepts MasterCard, just joined the growing list of these. Statista expects the amount of money moved by mobile payment to rise to $1.08 trillion by 2019. The amount spent via payment app is projected to be $620 million in 2016, up from $450 million in 2015.
- The growing popularity of gift cards and online money transfer money solutions like PayPal which encourage the use of cards for payments.
- Government monetary policy in certain nations which is deliberately trying to discourage the use of cash and encourage card payment. Prime Minister Narenda Modi declared India’s two largest bills; which comprised 86% of the cash in in circulation, worthless on November 8.
- Limits on cash withdrawals and payments in some countries which encourage card use. India now limits ATM withdrawals to $73.37 (2,500 rupees). Spain will limit cash payments to €1,000 on January 1, 2017, CryptoCoin News reported. If this does not encourage more credit card use nothing will.
- The growing popularity of cryptocurrencies such as Bitcoin. The use of which encourages card and electronic payment.
If you’re looking for a fintech company that is safe, growing and pays steadily MasterCard is for you. It also has a very bright future, because of technological changes and monetary policy.