The digital payments giant announced on Tuesday that its board of directors had approved a 21% increase in its quarterly payout to investors. Mastercard will pay $0.40 per share beginning on Feb. 7, 2020. To receive the dividend, investors will need to own the stock by Jan. 9.
Mastercard also announced a new $8 billion share repurchase program. The new stock buyback plan will start after the company's current $6.5 billion program is completed.
Mastercard is one of the prime beneficiaries of the war on cash. The trend toward digital forms of payment is a global phenomenon -- one that's likely to play out over many years, if not decades. As a leading payment-processing network, Mastercard is well positioned to profit from the growth of digital payments well into the future.
Mastercard earns a small fee every time somebody uses one of the 2.6 billion credit and debit cards on its network. In aggregate, these fees add up to billions of dollars in revenue and profits; Mastercard's payment processing fees and ancillary operations generated $4.5 billion in revenue and $2.7 billion in operating income in the third quarter alone. It's these profits that allow Mastercard to reward its investors with a rapidly rising dividend and a multibillion-dollar share repurchase program.
Pressing its advantage
Mastercard's sizable profits also allow it to continuously expand and strengthen its payments empire. The company has made a host of value-enhancing acquisitions in recent years that have helped it offer new services in areas such as real-time ACH (automated clearing house) payments, cross-border payments, data analytics, and fraud protection. In addition to boosting Mastercard's revenue and profit base, each additional service increases switching costs for its customers, making them less likely to turn to a competitor. They also help Mastercard win new customers.
Earlier this year, Mastercard struck a deal with Apple and Goldman Sachs to launch the new Apple Card. It also formed a partnership with Latin American payments leader MercadoLibre to accelerate the growth of mobile payments via contactless technology in the region. These and other deals are helping to fuel Mastercard's expansion, particularly in international markets.
All told, Mastercard's strong competitive position and intriguing growth prospects are reflected in its stock price. The payments titan's shares currently trade for 32 times analysts' earnings estimates for 2020. That's a bit rich for a business that's projected to grow its profits by less than 17% annually over the next five years. Still, Mastercard is an elite business, and investors have been rewarded for buying its shares at pretty much any time in its history as a public company. That's likely to also be true for investors who buy shares today.