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Mastercard (MA) Ups Dividend by 14%, Share Buyback by $4B


Banking on three solid quarters of 2017, the board of Mastercard Inc. MA announced incremental capital deployment plans, thereby augmenting shareholder returns.

In an attempt to boost capital efficiencies, the company hiked its regular quarterly dividend by 14% to 25 cents per share from the prior payout of 22 cents. The raised dividend will be paid on Feb 9, 2018, to shareholders of record as of Jan 9.

The increased payout takes the annual dividend to $1.00 from 88 cents paid in 2017. At the current price, the raised yearly dividend yields 0.7%, up from the prior yield of 0.6%.

Alongside this hike, the board of Mastercard sanctioned a new share repurchase program worth $4 billion. Including $1.5 billion from the last approval, the company currently has $5.5 billion worth of shares available for buybacks

Solid Capital Deployment

Mastercard boasts a strong balance sheet with financial flexibility and continued cash generated (that has been increasing save in 2014) from operating activities since 2009. It generated $4.5 billion of operating cash flow in 2016, up 11% year over year. The same was up 8.5% year over year as of Sep 30, 2017.

The company’s disciplined capital management strategy by way of share buyback and dividend payments remains impressive. Last December, the company announced a new share buyback program of $4 billion and increased its quarterly dividend by 16%.

Factors at Play

Armed with strong liquidity and cash flows, we believe Mastercard is well positioned to implement the latest capital plans. The improved outlook for card spending, cross-border volumes, gross dollar value and payment volume generation given the recent strategic alliances, improving global economies and rapidly growing digital payments are likely to improve financials, going forward.

Notably, global spending through credit and debit cards has grown consistently, boosting cross-border volumes, which drives revenues for card giants. Given the onset of the holiday season, we also expect improved transaction volumes and digital payments as shopping and traveling will be in the cards for most global citizens.

Moreover, numerous acquisitions made in recent years have further strengthened the company’s long-term inorganic growth profile, without risking its capital. These factors will likely lead to lucrative shareholder returns and retain market confidence.

Share Price Performance

So far this year, the stock has returned 42.8%, significantly outperforming the 25.3% gain logged by the industry.

Peer Take

Other players in the same space like Visa Inc. V, Discover Financial Services DFS and American Express Co. AXP raised their dividend payments this year by 18%,16.7% and 9%, respectively. These companies have been generously returning excess capital through share buybacks as well.

Zacks Rank

Currently, Mastercard carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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