Mastercard Inc. (MA) is a leading payment processor with an iconic brand of debit, credit, and prepaid cards. While it began as a cooperative owned by more than 25,000 financial institutions, an initial public offering in 2006 transformed it into a publicly traded company.
The company generated most of its revenue from transaction processing (38%), domestic assessments (29%), and cross-border volume fees (13%) during the third quarter. Of course, cross-border volume fees typically account for a larger share (23%) of revenue, but cross-border transaction volume fell 36% during the quarter due to ongoing travel restrictions.
The company has used its profitability to drive shareholder value through a combination of dividends and share repurchases. While it has a modest dividend yield, the company recently announced a new $6 billion share repurchase program that will become effective once its previous $8 billion program is finished ($3.8 billion is remaining).
Spending Recovery
The COVID-19 pandemic has had a dramatic effect on consumer spending since March 2020. By November, Mastercard reported that domestic spending levels have normalized with some approaching growth based on fourth quarter operating metric updates, although cross-border transactions remain severely depressed due to travel restrictions.
During the third quarter, the company reported a 14% drop in net revenue and a 27% drop in diluted earnings per share. While gross dollar volume rose 1% and switched transactions rose 5% during the quarter, cross-border volume fell 36% and rebates and incentives increased 2% on a currency-neutral basis, which more than offset the domestic spending growth.
The company raised its quarterly dividend by 10% to $0.44 per share, which represents a 0.52% forward yield. The dividend is payable on February 9, 2021 to shareholders on record as of January 8, 2021.
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