Is MasterCard Inc (NYSE:MA) A Reliable Dividend Growth Stock?

December 06, 2017, 13:04 pm ET, BY Simon M.- Contributor| Editor: Thomas H. Kee Jr. (Follow on LinkedIn)

MasterCard Inc (NYSE:MA) is the second-largest payment processor in the world trailing its main competitor Visa Inc (NYSE:V) by quite a big margin. The company’s stock price has been on a major tear in the past year, which begs the question whether it is prudent to invest in the company at its current valuation.

Article Summary

MasterCard is the second-largest payment processor globally.

The company had better results in the most recent quarter than Visa.

Visa appears to be cheaper than MasterCard with better dividend growth potential.

Here’s the trading report on MA.

MasterCard and Visa have rallied by over 200% in the last five years, which means that investing in either company back in 2013 would have yielded the same result. However, as the global payments industry matures, the two companies are likely to chart slightly different paths, but both are likely to maintain their current growth trajectories.

The two companies are set to benefit from the move towards a cashless society as many consumers abandon the use of cash in favor of credit and debit cards. MasterCard currently controls about 29% of the credit card market and 24% of the debit card market, while Visa leads with 44% and 65% of the two markets respectively.

It is clear that Visa has greater market share as compared to MasterCard, and given that both brands are well-known and respected globally, it is quite unlikely that MasterCard shall one day displace Visa as the market leader. MasterCard is likely to continue trailing Visa in this very competitive market, but it is possible that it could steal a bit of market share from Visa.

The two companies are currently overpriced given that Visa currently trades at a P/E ratio of 40.47, while MasterCard’s P/E is slightly lower at 35.96. Although MasterCard posted stronger revenue growth in the last quarter, Visa has grown its revenues over the past seven years at a higher rate than MasterCard.

The two companies have both grown their dividends consistently in the past with MasterCard boasting of five consecutive years of dividend increases, while Visa has had eight consecutive years of growing its dividend.

A major differentiator between the two companies is that over the past five years, MasterCard has experienced P/E expansion, while Visa has experienced P/E contraction. This means that Visa is quite cheaply valued when compared to MasterCard.

The two companies are extremely similar and both are likely to be good dividend growth stocks. However, Visa appears to be cheaper than MasterCard.

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