Mastercard Inc (NYSE: MA) has been trying to return more cash to shareholders via both dividends and share buybacks. Recently, the company announced that it would double its quarterly dividend and repurchase up to $2 billion of its Class A shares. Since the middle of 2006 MasterCard’s share price has increased more than 10 times, from $48 to $520. In addition, the company has also paid consistent and increasing dividends to shareholders. Let’s look closer to determine whether or not we should buy MasterCard at its current price.
A Fast Growing Year With Increasing Cash Return
At the end of January the company reported an impressive full year 2012 results. Total revenue experienced a 10% growth to $7.4 billion, while the net income increased 15% to $2.76 billion. EPS came in at $22.04, a year-over-year growth of 18%. In terms of operating performance, the processed transaction, gross dollar volume, and cross-border volume all experienced double-digit growth of 25%, 15%, and 16%, respectively. In 2012, the company bought back 4.1 million shares for around $1.7 billion.
Mastercard remained a debt-free company. As of December 2012, MasterCard had nearly $6.93 billion in equity, more than $2 billion in cash, and no debt. To return more cash to its shareholders, MasterCard decided to double its quarterly dividend to 60 cents per share and buy back up to $2 billion of the Class A common stock. Ajay Banga, the company’s president and CEO, commented: “Our strong financial performance allows us to increase the return of cash to shareholders through our dividend and share repurchase programs. We remain focused on executing our strategy and growing our business for the future.”
High Profitability and Rapid Expansion
Indeed, MasterCard has been cannibalizing itself for the last 5 years. The treasury stock amount has grown from $600 million in 2007 to more than $4.1 billion in 2012. In the same period, its free cash flow has increased significantly, from $613 million to more than $2.8 billion. Since 2009, MasterCard has delivered significantly high returns on equity, which fluctuated in the range of 34.4% – 53.9%. In 2012, the return on equity was nearly 40%. Looking forward, MasterCard will keep expanding its business in overseas markets across Asia/Pacific, the Middle East, and Africa. The locations of the company’s new contactless payment technology, MasterCard Paypass, has experienced a 28% year-over-year growth to nearly 700,000 merchant locations in 51 countries including Singapore, Australia, United Arab Emirates, Vietnam, etc.