Mastercard Incorporated MA has announced a 32% hike in its quarterly dividend to 33 cents per share.
The company has also received a board approval for a new share repurchase program to buy back up to $6.5 billion of its Class A shares. This buyback will however, come into effect after the company's exhaustion of the prior $4-billion repurchase program.
Dividend payments and share buybacks are some of the measures that companies undertake utilizing funds for generating shareholder’s wealth. While dividend payouts act as a source of income for investors, share buybacks reflect the company’s sound health and management’s confidence in it.
Mastercard is undoubtedly one of the key leaders in the payments space with a huge global payment network. The company channelizes billions of transactions processed daily. It is also making huge investments in technology to provide a secure, fast, reliable, efficient payments experience via different modes such as cards, mobile, contactless and more.
Investors are highly optimistic about the company that has witnessed a revenue CAGR of 11% during the 2012-2017 period and 21% growth in the first nine months of 2018. The recent dividend raise and increase in share buyback authorization further instills investors’ trust in the company.
Year to date, the stock has surged 38% compared with the industry’s growth of 25%.
Side by side, Mastercard also announced to incur a charge of about $650 million from the second European Union antitrust investigation in which, it was accused of restraining banks in one EU country from offering lower interchange fees to a retailer in a second EU country.
Moreover, the multilateral interchange fee imposed by Mastercard was very anti-competitive and escalated prices for those European retailers, who accepted payments from cards, issued outside the European Economic Area (EEA) and consequently, induced higher prices for consumer goods and services in the EEA.
In order to abate the EEA concerns, Mastercard has committed to reduce the inter-regional interchange fees by at least 40%. The company has proposed commitments to lower inter-regional interchange rate, applicable to consumer card transactions at merchants in the EEA and using card outside the EEA. For debit cards used at the point of sale, the interchange rates will be seen dipping 0.2% and for credit card holders, the same will slip 0.3%.
In case of transactions wherein the card is not present at the point of sale, the charge on debit cards will be slashed by 1.15% and 1.5% for the credit cards. The proposed commitments are subject to market testing by the European Commission before being converted into a final decision.
Another company in the same space, Visa Inc. V, has also provided a parallel commitments offer.
Mastercard carries a Zacks Rank #2 (Buy). Other companies worth considering in the same space include Evertec, Inc. EVTC and Total System Services, Inc. TSS, both carrying the same top Zacks Rank of 2 as Mastercard. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Each of these companies surpassed the respective Zacks Consensus Estimate in each of the four reported quarters, the average beat being 17% and 7.12%, respectively.
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