Basking on three solid quarters of 2013, the board of electronic card processing giant — MasterCard Inc. (MA) announced fresh plans to boost capital efficiencies, while also returning excess wealth to shareholders.
Per capital plans, MasterCard announced its first 10-for-1 common stock split effective Jan 21, 2014 to shareholders of record as on Jan 9, 2014. The stock split will make the shares of the company affordable enough to reach out to smaller investors, thereby shoring up demand in future.
Accordingly, MasterCard will issue 9 more shares against each share held by an investor. Overall, the company will issue about 1.1 billion additional shares, thereby increasing the total shares outstanding to 1.2 billion from 120 million.
However, the current market capitalization (calculated as the product of share price and total shares outstanding) of about $91.92 billion will remain intact. Conversely, the share price of MasterCard will depreciate, in turn making it inexpensive for small investors. At the current price, the stock split will likely bring down the market price to approximately under $80 per share.
Capital Deployment Actions
Adding to shareholder value, the board of MasterCard also sanctioned a new share repurchase program worth $3.5 billion, which will be implemented once the remaining $514 million of stock is bought back from the prior authorization of $2.0 billion, approved in Feb 2013.
Further inflating shareholder return, MasterCard hiked its quarterly dividend by 83% to $1.10 per share from the prior pay-out of 60 cents. Post the stock split, this will equate to 11 cents per share or an annual dividend of 44 cents. The raised dividend will be paid on Feb 10, 2014 to shareholders of record as on Jan 9, 2014.
This marks the second hike in 2013. Previously, MasterCard had increased its dividend annually by 100% each in Feb of 2013 and 2012, reflecting an unswervingly strong financial position. At the current price, the raised dividend of $1.10 a share generates a dividend yield of 1.4%, up from the prior 0.32%.
Market Reaction
While the stock split is expected to increase the number of shares and attract a diverse group of investors, the consistent and incremental share repurchase program will help lower the share count, thereby pumping up earnings per share in the upcoming quarters. The dividend hike further boosts shareholder confidence in the stock.
Subsequently, shares rose 0.6% to $763.61 at the end of Dec 10, whereas an appreciation of 4.77% was witnessed in the after-hours trading. A 60% hike in market price was recorded so far in this year itself. MasterCard’s stock has escalated over 20 times in less than 8 years of going public, since its initial public offering (IPO) at $39 in May 2006.
MasterCard presently sports a Zacks Rank #2 (Buy). Some other card payment service providers like Xoom Corp. (XOOM), Higher One Holdings Inc. (ONE) and Global Payments Inc. (GPN), also carrying the same Zacks Rank as MasterCard, are worth consideration.
GLOBAL PAYMENTS (GPN): Free Stock Analysis Report
MASTERCARD INC (MA): Free Stock Analysis Report
HIGHER ONE HLDG (ONE): Free Stock Analysis Report
XOOM CORP (XOOM): Free Stock Analysis Report
