McDonald’s Corporation (MCD), Burger King Worldwide Inc (BKW), Mastercard Inc (MA), Visa Inc (V): Stocks for the Dividend Investor, Part 4: Future Potential

As the plastic money revolution continues to gain traction, Visa and MasterCard’s sales and income are growing rapidly.

Company	3-yr Compounded Revnune Growth	Revenue 3-yr CAGR	Net Income 3-yr CAGR
Visa	30%	14%	-16.3%
MasterCard	34%	16%	21.4%

Visa’s net income for 2012 was hit with a one-off charge so it has skewed my figures.

Excluding the one-off charges, Visa Inc (NYSE:V)’s net margin for 2012 was around 41%, and Mastercard Inc (NYSE:MA)’s was 36%. These wide net profit margins indicated to me that both companies will be able to improve shareholder returns in the future. Indeed, even now both Visa and MasterCard are sitting on large cash balances with no debt and these cash piles are rising, burning a hole in their balance sheets.

Metric	MasterCard	Visa
Current Ratio	1.9	1.5
Net Cash	$6.5	$7.3
Operating cash flow	$3	$5
Investing cash flow	$2.8 (excluding on offs $1)	$2.4
Dividends	$0.13	$0.6
Dividend Cover by cash flow	15x (excluding one-offs	4x
Free cash flow	$2.7	$4

$US Billions

Visa Inc (NYSE:V) and Mastercard Inc (NYSE:MA) have good current liquidity ratios with current assets easily covering current liabilities and net cash positions almost twice their yearly free cash flow. Excluding one-off events, MasterCard’s dividend payout is covered 15 times by cash flow and Visa’s payout is covered 4 times, indicating that both companies have plenty of room for further payout growth.

Conclusion

Looking for future dividend starts can be a risky business but these three companies listed above all have solid balance sheets and highly cash generative operations that will support stronger dividend payouts in the future. Even though it is impossible to predict future company actions, past performance indicates that these three company’s will be able to boost shareholder returns in the not-to-distant future.

The article Stocks for the Dividend Investor, Part 4: Future Potential originally appeared on Fool.com.

Rupert is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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