Mastercard: Charging Ahead

12/09/2016 9:00 am EST


Ingrid Hendershot

Founder and President, Hendershot Investments, Inc.

In the last five decades, people and businesses around the world have transformed how they pay for goods and services, observes Ingrid Hendershot, money manager and editor of Hendershot Investments.

From its earliest days of credit cards to the contactless and wireless payment options of today, MasterCard (MA) has led the industry with its innovative and growing range of products and solutions. It operates in more than 210 countries and territories.

With 85% of the world’s transactions still made with cash and checks, there is significant opportunity for further long-term growth as billions of people migrate away from cash to a more efficient and secure global payment network as the digital and physical worlds converge.

Over the past five years, MasterCard has generated double-digit growth with sales and EPS compounding at 10% and 23% annual rates, respectively.

During the third quarter of 2016, double-digit growth continued with revenues rising 14% to $2.9 billion and EPS charging 26% higher to $1.08.

MasterCard’s business model is highly profitable with net profit margins steadily expanding from an excellent 28% in 2011 to a superb 39% in 2015.

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 from $.06 per share to the current $0.76 per share.

Year-to-date, free cash flow increased 16% to $3.3 billion with the company ending the third quarter with $7 billion in cash on its stalwart balance sheet.

During the third quarter of 2016, MasterCard paid $630 million in dividends and repurchased approximately 6 million shares of Class A common stock at a cost of $591 million or an average price of $98.50 per share. Quarter-to-date through October 25, the company repurchased an additional 2.6 million shares at a cost of $263 million, which leaves $1.8 billion remaining under the current repurchase program authorization.

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. Buy.

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By Ingrid Hendershot, Editor of Hendershot Investments

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