MasterCard (MA -0.08%) recently announced a trio of excellent data points for investors, including an 83% increase in quarterly dividends and a new, aggressive share-buyback program. The news makes the case for investing in the credit card giant even easier.
The company now represents the best investment in the credit card industry, edging out rivals Visa (V 0.05%) and American Express (AXP -0.84%).
Master growth
I have long considered MasterCard one of the best equity investments, period. If I had to invest in only one company, I feel confident that MasterCard would be near the top of my list of contenders with only a handful of others.
By almost any metric by which I judge growth investments, MasterCard seems to excel. The company's revenue and earnings-per-share growth has remained at the very top of its industry for years now and has been extraordinarily consistent and reliable. MasterCard has grown revenue consecutively each year since 2004, which includes the financial crisis of 2008-2009.
The company is still projected to lead the industry higher next year. The following is a breakdown of MasterCard's projected growth rates for 2014 compared to competitors American Express and Visa:
|
American Express |
MasterCard |
Visa | |
|---|---|---|---|
|
Estimated revenue growth 2014 |
5.3% |
12.1% |
11.4% |
|
Estimated EPS growth 2014 |
9.7% |
17.4% |
16.8% |
MasterCard is expected to grow both revenue and earnings per share at faster rates than Visa and American Express in 2014.
However, the positives for MasterCard do not stop at growth. The company has zero debt, more than $5 billion in cash, and a robust profit margin of 38%.The company's return-on-invested-capital is also a robust 42.5%, which absolutely crushes the industry average of 9.1%.
The announcement
The company's recent announcement highlights several other of MasterCard's strengths that often go overlooked by many investors. First, management is raising the company's quarterly dividend by 83%, which incredibly manages to beat its last raise of 75%.
In addition to displaying a commitment to robust dividend growth rates, MasterCard's management is now showing that they intend to be more consistent with regard to dividend raises. The company has now raised its dividend twice in the past two years at an average growth rate of 79% and no less.
Second, management is also showing shareholders that it is remaining committed to aggressive share buybacks. The recently announced $3.5 billion share-repurchase program will go into effect after MasterCard's current $2 billion program ends.
Impressively, the current buyback program followed a prior repurchase program worth $1.5 billion. The pattern of consistent buybacks is becoming increasingly clear and means that investors can most likely look forward to more repurchase programs in the future.
10:1 split
The only thing that I did not completely like in the announcement was management's plan to split shares of MasterCard for the first time ever as a public company. The 10-for-one split will take MasterCard's share count from roughly 120 million to roughly 1.2 billion.
While certainly not a major negative in any way and most likely a nonevent, I was always of the mind-set that MasterCard's lofty share price was a positive. To me, it reinforced the company's prestige and elite status as one of best growth stocks in the market.
Still the master stock
MasterCard represents one of the best long-term investment opportunities in the financial industry and equity markets in general. The company is riding the unstoppable global trend toward electronic forms of payment. As more of the world transitions away from cash as a primary form of payment, companies that specialize in payment solutions like MasterCard stand to benefit immensely.
However, in an industry that is filled with great companies like American Express and Visa, it takes more to stand out. Fortunately, MasterCard is delivering exactly what is needs to remain the leader in the space. The company's recent announcement illustrates this perfectly, as management continues to reward shareholders through aggressive buybacks, the industry's best growth, and dividend growth.
Although shares of MasterCard are soon to be more accessible to retail investors by way of a 10-for-one split, they are no less great. In fact, they are about to become even better!