Mastercard (MA) has a brand that is among the most recognized in the world, observes Ingrid Hendershot, value-oriented money manager and editor of Hendershot Investments.
The company connects three billion cardholders with tens of millions of merchants around the world. Mastercard also offers services including cyber and intelligence products, information and analytics, identity verification, consulting, loyalty and reward programs, processing and open banking.
During the last five decades, people and businesses around the world have transformed how they pay for goods and services. The rise of electronic payments has fueled economic growth while delivering value to merchants, consumers and governments.
Mastercard continues to lead the industry with its innovative and growing range of products and solutions. With most of the world’s transactions still made with cash and checks, significant opportunity remains for further long-term growth as billions of people migrate away from cash to a more efficient and secure global payment network
Over the past five years, Mastercard has generated double-digit growth with sales, net income and EPS growing at 11%, 22% and 24% compounded annual growth rates, respectively. Its business model is highly profitable with net profit margins expanding from an excellent 31% in 2017 to a superb 46% in 2021.
With profitable operations and minimal capital expenditure needs, Mastercard generates strong free cash flows. The dividend has been increased significantly in the last five years compounding at a 19% annual clip. During 2022, the company announced an 11% increase in the dividend to $1.96 per share.
Free cash flow increased 13% during the first half of 2022 to $4.0 billion with the company paying $956 million in dividends and repurchasing $4.8 billion of its common stock, including 6.9 million shares repurchased at an average cost of $347.83 per share during the second quarter. The company has $6.7 billion authorized under its buyback program for future share repurchases.
Mastercard’s second quarter revenues charged 21% higher to $5.5 billion with net income increasing 10% to $2.3 billion and EPS up 13% to $2.34. This strong growth was driven by robust consumer spending despite increasing inflationary pressures. Mastercard is not seeing signs of a recession given resilient consumer spending thanks to low unemployment, high wage increases and high consumer savings.
Given the strong year-to-date momentum, Mastercard raised its revenue outlook for the full year with a low 20% growth expected on a constant currency basis. Long-term investors should go shopping with Mastercard, a high-quality company with a strong global brand, double-digit growth, highly profitable operations and strong cash flows.
