A Great Dividend Growth Stock Worth Adding

Today, I’m analyzing MasterCard stock and discussing their recent Q2 earnings report. This will include a comparison to Visa stock, both the positives and negatives. Finally, I’ll evaluate whether it’s a good addition to my long-term dividend growth stock portfolio.

Let’s do this!

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THE KEY STORY

Buy MasterCard Stock & Hold Forever | MA Stock Analysis 2024

MasterCard's Strong Financials

MasterCard, ticker symbol MA, is renowned for being one of the best dividend growth stocks you can buy. With a low payout ratio below

20%, the company’s dividend has been growing at an impressive 19.6% compound annual growth rate (CAGR) over the past decade. While this growth has slightly slowed to a three-year CAGR of 14.47%, the company continues to show strong financial performance.

Recent Earnings Report

MasterCard recently reported earnings, which led to a 3.63% increase in its stock price, contrasting the decline seen by Visa. Here are the key highlights from MasterCard's Q2 earnings report:

• Revenue: Grew 11% year-over-year.

• Operating Income: Increased 10% year-over-year.

• Net Income (GAAP): Up 15% year-over-year.

• Earnings Per Share (GAAP): Up 177% year-over-year.

• Net Income (Non-GAAP): Up 22% year-over-year.

• Earnings Per Share (Non-GAAP): Up 24% year-over-year.

Business Model and Market Position

Both Visa and MasterCard share a similar business model, operating digital payment networks that authorize and clear transactions. They do not issue cards themselves, thus avoiding direct credit risk. Instead, they partner with financial institutions and fintech companies to issue cards.

MasterCard has shown strong growth in revenue per share, with a 14.45% 10-year CAGR. The company boasts high margins with 76% gross margins, 57% operating margins, and 44% net margins. Free cash flow per share has grown at a 14.53% 10-year CAGR.

Dividend and Share Buybacks

MasterCard pays a fast-growing quarterly dividend with a 5-year CAGR of 14.87%. The most recent dividend increase was 15.79%, and the payout ratio remains extremely sustainable at 18% of free cash flow and 19% of earnings per share. Additionally, MasterCard buys back shares at around 2.5% per year.

International Exposure

MasterCard has a higher international exposure compared to Visa, with 66% of its business outside North America. This contrasts with Visa, which has 56% of its business outside the U.S. This international exposure provides MasterCard with more growth opportunities globally.

Comparison with Visa

While Visa’s recent earnings showed a slight deceleration in growth, MasterCard’s growth rates remain strong, particularly internationally. MasterCard’s balance sheet shows $7 billion in cash compared to Visa’s $19.5 billion. Additionally, MasterCard has $8.61 billion in net debt compared to Visa’s $1 billion. Despite this, MasterCard’s higher growth rates and return on capital employed at around 55% make it a strong contender.

Future Projections and Valuation

Analysts project higher growth rates for MasterCard, leading to a higher P/E ratio of 36.8 compared to Visa’s 27. Projections for MasterCard include 13% growth in 2024, 15% in 2025, 16% in 2026, and 17.7% in 2027.

Based on these growth projections, MasterCard is expected to have a P/E ratio of 20 in 2027. If trading at a 35 P/E ratio (the current), the stock price could reach around $780, offering approximately 70% returns over four years. Currently, MasterCard is trading slightly above the consensus price target of $451.48 but still has an overwhelming buy rating from analysts.

Conclusion

Both MasterCard and Visa are excellent choices for a long-term dividend growth stock portfolio. Their dominant market positions and strong business models ensure solid returns. I’m heavily considering adding MasterCard to my portfolio alongside Visa. Stay tuned for updates!

Disclaimer: This is not financial advice. Please do your own research before making any investment decisions.

THE NEWS

Meta Stock Pops 7% After Earnings

1. Meta Platforms Q2 2024 Earnings Results (Meta Investor Relations)

2. MasterCard Q2 2024 Earnings (MasterCard Investor Relations)

3. Altria Group (MO Stock) Dips 3% After Earnings Miss (Altria Investor Relations)

4. ARM Stock Down 10% After Earnings (ARM Investor Relations)

5. VICI Stock Q2 2024 Earnings Results (VICI Investor Relations)

Thanks for the read! Let me know what you thought by replying back to this email.

- Zach
Dividend Data

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