In a market slump like this one, where all the major benchmarks are in negative territory for the year, consistency may be a quality that is particularly important to many investors.
One of the most consistent stocks over the years has been Mastercard (MA -0.93%). The payment processing giant has shown that it can outperform in multiple market environments, as its 11-year streak of positive returns has shown. Hereʻs why it should remain a consistent performer.
11 straight years of positive annual returns
Mastercard has not posted a negative annual return since it finished 2010 down 12%. There are very few stocks on the market that can boast that kind of consistency. Even the S&P 500 had a down year during that time, losing 4.4% in 2018. Mastercard has beaten the S&P 500 in eight of those 11 years, and it's winning this year, too.
Since the end of 2010, Mastercard has posted an annualized return of 28.5%, while the S&P 500 has grown at a compound rate of 11.8%.
While past performance is not indicative of future results, Mastercard's performance through this downturn is illustrative of its consistent ability to perform while many other growth stocks are faltering.
Why Mastercard delivers consistent returns
It should be noted that Mastercard's rival, Visa, has been nearly as consistent, although it did barely dip into negative territory in 2021, down 0.3% while Mastercard finished the year up 1.3%. But Mastercard has the higher annualized return over the past 12 years, as Visa posted an annualized return of 25.3% over that same span.
The success of Mastercard, and Visa, for that matter, can be attributed to many things, but their unique place in the market and their business models are high on that list. As the two leading payment processors, Mastercard and Visa form a duopoly.
They both have massive networks through which credit and debit payments go, and there are really no other direct competitors. While American Express and Discover Financial Services have their own credit networks, they are much smaller and their business models are different. Both Discover and American Express act as their own banks, so they lend the money to customers in their network and collect interest, as well as fees.
Mastercard and Visa are not lenders or issuers. Other banks issue the credit card on their networks, while Mastercard and Visa collect the fees every time the card is used. There is relatively little overhead and no credit risk, which leads to huge margins. Mastercard has an operating margin of 54% and a profit margin of 46% -- both extremely high.
And Mastercard's return on equity is off the charts at 124%, when you consider the average ROE of the S&P 500 is 18.6%. What that means is Mastercard is generating more than $1 in net income for every $1 of shareholder equity. By comparison, the average S&P 500 company which makes about $0.18 in profit for every $1 of shareholder equity. And Mastercard has consistently been over 100% for the past four years.
The center of a changing landscape
While the payment landscape is changing, with new fintech providers offering payment services, the money still goes through the two major networks. And while buy now, pay later (BNPL) services offer an alternative to credit cards, Mastercard has developed its own version of BNPL.
Payments are rapidly changing, and where the industry will go over the next 10 or 20 years is impossible to say. Certainly, there are potential threats from cryptocurrencies to Mastercardʻs dominance as my colleague Travis Hoium points out.
But it's hard not to see Mastercard remaining at the center. As the world increasingly moves away from cash to mobile and online payments, Mastercard is in a prime position to capitalize on this trend due to its massive network and its resources.