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A Shareholder Friendly Payment Toll Booth…

Mastercard is a leading global payments solutions company facilitating electronic funds transactions throughout the world. The company engages in authorizing, clearing, and settling payment transactions and delivering related products and services. In addition, the company also provides other value-added services such as information and analytics services, consulting, loyalty and reward points, etc.

Mastercard has a presence in more than 210 countries and territories facilitating both domestic and cross-border transactions across multiple payments flows. The U.S. constitutes nearly 30% of the total value of cleared transactions while the rest of the world accounts for 70%. The company operates through well-known brands such as MasterCard, Maestro, Cirrus, and Masterpass.

Mastercard caters to the needs of diversified customers ranging from individual consumers, merchants to governments, the public sector and businesses, etc. It also provides customized business payment solutions for corporations by tailoring their core products for various corporate applications. The company runs 1300 programs with governments in 60 countries and partners with leading industry names such as Apple, Uber, Goldman Sachs, Unilever, etc. As the second-largest credit card payment network in the world, Mastercard recorded $1.55 trillion worth of transactions with 2.6 billion Mastercard and Maestro-branded cards in circulation in the last year.

Investment Data

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Revenue Growth & Market Exposure

Mastercard’s revenues comprise fees for clearing transactions and providing other related services. With nearly five decades of existence, Mastercard has been finding innovative ways to make payments safer, faster, and more reliable. The company’s products are designed to work seamlessly across all digital platforms, retail channels, and devices. Mastercard offers an array of card products and programs for consumers, businesses of all sizes, governments, and corporations. It has engaged with governments in over 100 data analytics, cybersecurity, and disbursement programs in over 30 markets around the world since the beginning of the crisis. Mastercard also announced a partnership with the Bank of Shanghai to allow its customers to send international B2B payments into China.

Over the years, Mastercard has become a one-stop network that supports all kinds of payment types for all kinds of users and across all kinds of transaction paths. Mastercard continues to expand organically as well as through acquisitions. It is expecting to grow its open banking reach and capabilities through the planned acquisition of Finicity. The acquisition of Vyze allowed Mastercard to advance its presence with marquee merchants in the U.S. Mastercard also announced an expanded partnership with Samsung. In addition, the company also entered into partnerships with Pine Labs, Afterpay for tailored regional solutions. An extensive network, an efficient and fast payments processing network, and globally recognized brands are Mastercard’s biggest strengths.

Mastercard is focusing on growing its customer base and creating new products and services. Its software-driven solution Masterpass QR is now live in 11 markets and poised to be rolled out in 13 additional markets, including countries in the Asia Pacific, Latin America, the Middle East, and Africa. The company invests continually in technology improvements and is trusted for transaction safety and security and supporting seamless transaction flow.

MasterCard is in a good position to benefit from the trend of increasing digital and contactless payments through its unique platform across consumer and business payments driven by the COVID-19 pandemic. The company has estimated that over 70% of consumers will increase their online purchasing and ~60% will use less cash even after the pandemic subsides. In addition, the company has enabled click to pay in the U.S. and is set to roll it out worldwide soon. The total addressable market for payment flows is $225 trillion. Its second-quarter net revenue, purchase volume, and cross-border volume declined by 19%, 9%, and 45%, respectively. Mastercard is focusing on investing in strategic areas like open banking, real-time payments, Cyber and Intelligence Solutions, and B2B themes.

Dividends

Mastercard is a dividend starter with a sound track record of returning cash to its shareholders. It last raised its dividends by 15%. During the second quarter of 2020, Mastercard paid $401 million in dividends. The company resumed its share repurchase program at the end of the second quarter and repurchased ~3.3 million shares (QTD) leaving $5.9 billion remaining under the current repurchase program authorization. Mastercard has a modest dividend yield of 0.5% and a low payout ratio of 22%. The company has compounded its dividend growth at more than 36% CAGR in the last ten years. Its EPS has also grown at 21% CAGR during the same time.

Mastercard is looking at enhancing the customer experience with technology developments through tokenization, APIs, and QR codes. Given its leading reputation as a global payment partner, Mastercard is favorably positioned for key wins and partnerships across different geographies. The company has a large market share in developing economies and that should continue increasing given its strong focus on cross-border transactions and service offerings.

As domestic economies open up and normalize, the company should witness an improvement in volumes given the rising trends of e-commerce and contactless transactions worldwide. A growing number of payments and international transactions should help Mastercard continue paying its dividends and a low payout ratio also indicates enough room for future dividend hikes.

Competition

Mastercard competes with emerging as well as existing competitors such as Visa, American Express, Discover Financial Services, JCB, and UnionPay. It competes against all forms of payment including paper-based payments, primarily cash and checks, as well as electronic payments. Mastercard faces intense competition from global and local networks, alternate payment providers, payment processors, and other electronic payments network. Security, convenience, speed, and reliability are Mastercard’s strong competitive advantages.

Bottom Line

Mastercard is a global leader in providing a wide range of payment solutions and services, making payments easier and more convenient for its customers worldwide. The company stands a good chance to benefit from the fast digitization of accounts payables and receivables for corporations, as brought to light by the current crisis situation. The company has reached its goal of including 500 million people in the digital economy by 2020 and is targeting to reach out for a 1 billion mark by 2025. Given Mastercard’s large global outreach the company is well-positioned to capture market share in major rising economies where the majority of transactions are still in cash. Mastercard’s extensive acquisitions and partnerships will further advance its cross-border payments.


Dividend Adjusted Chart by StockRover.

DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.

DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.

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