Source: Håkan Dahlström.
MasterCard (MA +0.22%) has been rewarding investors quite nicely over the years. Since the market bottom in 2009, its stock price has soared, from more than $128 per share to nearly $800 per share.
Recently, it has announced it would be executing a 10-for-1 stock split and increasing its dividends by 83%. Should investors consider MasterCard after its good news announcement? Let's dig deeper.
Fast growing and increasing cash return to shareholders
MasterCard is considered the second largest global payments and technology company, owning several brands including MasterCard, Maestro, and Cirrus. In 2012, MasterCard processed nearly $3.65 trillion in volume with its 1.2 billion cards issued. It ranked second only after Visa (NYSE: V), which processed more than $6.4 trillion in volume in 2012 and has nearly 2.1 billion cards in circulation. American Express (NYSE: AXP) sits in third place, with 102 million cards and $888 billion in total volume.
In the third quarter, MasterCard experienced double-digit EPS growth of 17%, partly because of its share repurchase program. It has spent around $345 million to buy back 575,000 class A shares.
At the current price, MasterCard offers investors a quite small dividend yield, at 0.30%. However, it has decided to return more cash to investors with the increase in dividend payments. Its quarterly dividend will be raised to $1.10 per share, equivalent to the annual payment of $4.40 per share. The dividend yield will be a bit higher, at 0.58% at the current price. Moreover, it authorized the share repurchase program of $3.5 billion, giving investors an additional yield of 3.8%.
Are Visa and American Express more attractive?
Among the three, American Express gives investors the best dividend yield at 1.10% while the dividend yield of Visa sits at just 0.80%. Both companies also executed share repurchases over time. In the fourth quarter, Visa announced a new $5 billion share repurchase program, which is considered the largest buyback program ever in the company's history.
With a total market capitalization of $127 billion, a $5 billion share repurchase represents more than 3.9% yield to investors. American Express also returned cash to shareholders via share buybacks, reducing its total share count by 5% in the past year.
American Express has a bit of a different business model than both Visa and MasterCard. As American Express also offers financing program for consumers, it is exposed to credit risks with a much lower return on invested capital -- 4%. Visa and MasterCard, on the other hand, act only as intermediaries to connect banks, merchants, and consumers. As they do not provide loans directly to consumers, they do not have any credit risks. Among the three, MasterCard seems to be the most compelling, with the highest return on invested capital at 42%, Visa has a lower return on invested capital at 18%.
My Foolish take
MasterCard seems to be the best pick among the three biggest global card players. With its global leading positions, a significantly high return on invested capital, and an upcoming dividend increase and share repurchases, MasterCard's shareholders will certainly benefit from holding its shares in the long run.
