Investing behind broad secular trends can prove to be a lucrative strategy. By owning some of the leading businesses that are taking a bigger share of rapidly growing industries, investors can hopefully see their portfolios values soar.

Without a doubt, Mastercard (MA 0.29%) falls into this category thanks to its focus on facilitating cashless transactions. It has been a hugely successful stock for shareholders over the years. And it could continue being a winner. 

A winning investment 

If you had invested $1,000 in Mastercard 10 years ago, you would be sitting on $6,980 today. That translates to a monster return of 598%. This gain not only exceeds the 459% return of Mastercard's chief rival, Visa, but it absolutely trounces the 221% total return of the S&P 500 and the 304% total return of the Nasdaq Composite Index.

While readers might assume that Mastercard is a credit card company, this would be a flawed view. Instead, it is strictly a payments network, providing the underlying tech and data infrastructure that connects merchants, consumers, and financial institutions to allow for the authorization, settlement, and funding of transactions. The key here is that Mastercard doesn't extend credit, and as a result isn't as influenced by the whims of the macroeconomic cycle as banks are. And this has contributed to the company's financial success, which I will discuss below.

Over the past decade, bank stocks JPMorgan Chase and Bank of America have increased 199% and 208%, respectively. They trail far behind Mastercard, a testament to its superior business model. Boosting Mastercard's return for shareholders is the company's dividend, which has skyrocketed over time.

Favorable characteristics

Unsurprisingly, paramount to Mastercard's impressive success has been its stellar financial performance. In 2012, the business generated revenue of $7.4 billion and diluted earnings per share (EPS) of $2.19. Fast forward a decade, and Mastercard reported 2022 revenue of $22.2 billion and diluted EPS of $10.22. Apart from posting a paltry sales increase of 2.4% in 2015 and a sales decline of 9.4% in pandemic-ridden 2020, Mastercard has registered double-digit top-line growth in every other year. That consistency is outstanding and is certainly something shareholders want to see from the companies they own.

As I alluded to in the intro, Mastercard is riding the secular trend of consumer behavior shifting from cash transactions to card and digital transactions. The business processed a whopping $8.2 trillion in gross dollar volume last year, which measures the activity on the network. This is a massive jump from the $3.6 trillion it processed back in 2012. 

Mastercard's economic moat stems from its powerful network effects. Because there are currently 3.1 billion active outstanding Mastercard-branded cards, merchants really have no choice but to accept this form of payment. And according to WalletHub, 37 million merchants worldwide accept Mastercard credit cards, making it invaluable for consumers to have in their pockets. In other words, it's not likely for a new payments network to be created from scratch that could rival Mastercard's dominance.

Having a massive network like this also benefits Mastercard's profitability. Because it costs next to nothing to process an additional transaction, the company scales extremely well, increasing its bottom line at a faster clip than its top line. Consequently, in 2022, the business had an operating margin of 56.8% and a net income margin of 44.7%, meaningfully greater than where they were in 2012. What's more, Mastercard produced positive free cash flow of $10.1 billion last year, good for an unheard-of FCF margin of 45.5%. 

The future looks bright, as Wall Street consensus analyst estimates call for revenue and FCF to increase at a compound annual rate of 12.1% and 15.9%, respectively, between 2022 and 2027. This impressive outlook could justify buying the stock at a price-to-earnings ratio of 35 -- slightly below the trailing-10-year average.