MasterCard Chases Visa on Dividend Hike and Stock Buyback

Banking, finance, and taxes

Published: December 2, 2014 1:00 pm

Last Updated: December 2, 2014 1:04 pm

MasterCard Inc. (NYSE: MA) has decided to chase rival Visa Inc. (NYSE: V) with a dividend hike. The credit card processing giant announced on Tuesday that its board of directors has approved an increase to the company’s quarterly cash dividend. MasterCard is also chasing Visa with a stock buyback plan as well.

MasterCard’s dividend hike was up by 45% to $0.16 per share per quarter. The old dividend rate was $0.11 per share per quarter.

As we signaled after earnings, both credit card processing giants had told a better tale of the consumer than the economic data indicated previously.

When Visa raised its dividend (announced on October 22, 2014), it did so by 20% to $0.48 per share, taking the annual payout up to $1.92 per share from a prior level of $1.60. Visa’s current yield under the higher dividend is 0.74%, versus MasterCard’s new current dividend yield (based on the higher payout) of about 0.74%. Our verdict may be the same for MasterCard as it was for Visa: despite being such a low yield, this might be as good as it can get for now.

ALSO READ: Analyst Sees High-Quality Dividends as Bright Spot for 2015

MasterCard’s board also approved a new share repurchase program authorizing the company to repurchase up to $3.75 billion of its Class A common stock. MasterCard has a market cap of $100.5 billion.

Visa previously announced that it had authorized a new $5.0 billion repurchase program, back on October 29, 2014. Visa’s market cap is roughly $162 billion.

MasterCard said in its release:

The new share repurchase program will become effective at the completion of the company’s previously announced $3.5 billion share repurchase program. As of December 1, 2014, the company had approximately $275 million remaining under the current program authorization. … Today’s dividend and share repurchase program announcement comes as a result of our continued, strong financial performance. We remain committed to delivering value to our shareholders, while investing in the growth of our business.

24/7 Wall St. has just predicted fresh dividend hikes for this month coming from five Dow Jones Industrial Average stocks. Visa was not among them as the company had already raised its payout.

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MasterCard shares were down 0.1% at $87.30 in mid-day trading Tuesday, but that was up about $0.75 from the low of the day. The stock has a 52-week trading range of $68.68 to $88.16 and a consensus analyst price target of $92.18. MasterCard’s highest analyst price target is up at $110.

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