Mastercard:
Double-Digit Growth, Strong Cash Flows

Mastercard, a technology company in the global payments industry, operates one of the world’s fastest payments processing networks, connecting consumers, financial institutions, merchants, governments and businesses in more than 210 countries and territories, notes Ingrid Hendershot, President of Hendershot Investments Inc., and editor of Hendershot Investments, newsletter.

The Mastercard brand is among the most recognized in the world. The company offers a wide range of payment solutions, including credit, debit, prepaid, digital wallet and commercial programs through a family of well known brands, including Mastercard, Maestro and Cirrus. With a proprietary global payments network, Mastercard connects three billion cardholders with tens of millions of merchants around the world. Mastercard also offers services including cyber and intelligence products, information and analytics, identity verification, consulting, loyalty and reward programs, processing and open banking.

From its earliest days of credit cards to the contactless and wireless payment options of today, Mastercard continues to lead the industry with its innovative and growing range of products and solutions. With most of the world’s transactions still made with cash and checks, significant opportunity remains for further longterm growth as billions of people migrate away from cash to a more efficient and secure global payment network.

Profitable Growth

Over the past five years, Mastercard has generated double-digit growth with sales, net income and EPS growing at 11%, 22% and 24% compounded annual growth rates, respectively.

Mastercard’s business model is highly profitable with net profit margins expanding from an excellent 31% in 2017 to a superb 46% in 2021.

Strong Cash Flows

With profitable operations and minimal capital expenditure needs, Mastercard generates strong free cash flows. The dividend has been increased significantly in the last five years compounding at a 19% annual clip.

During 2022, Mastercard announced an 11% increase in the dividend to $1.96 per share. Free cash flow increased 13% during the first half of 2022 to $4.0 billion with the company paying $956 million in dividends and repurchasing $4.8 billion of its common stock, including 6.9 million shares repurchased at an average cost of $347.83 per share during the second quarter. The company has $6.7 billion authorized under its buyback program for future share repurchases.

Second Quarter Results

Mastercard’s second quarter revenues charged 21% higher to $5.5 billion with net income increasing 10% to $2.3 billion and EPS up 13% to $2.34. This strong growth was driven by robust consumer spending despite increasing inflationary pressures. Mastercard is not seeing signs of a recession given resilient consumer spending thanks to low unemployment, high wage increases and high consumer savings.

Travel and lodging spending in the U.S. increased 25% with crossborder volume easily surpassing prepandemic levels in 2019. Spending in Europe is positive despite higher energy costs and the war in Ukraine.

Spending in Asia has lagged the global recovery due to continued Covid restrictions with significant upside remaining in Asia. Given the strong year-to date momentum, Mastercard raised its revenue outlook for the full year with a low 20% growth expected on a constant currency basis.

Long-term investors should go shopping with Mastercard, a HI quality company with a strong global brand, double-digit growth, highly profitable operations and strong cash flows. Buy.

Editor’s Note: Ingrid Hendershot is President and CEO of Hendershot Investments, Inc. an investment management firm offering personalized investment advisory services to individuals, pension and profit sharing plans, trusts, estates, charitable organizations and corporations or other business entities. Hendershot Investments is a quarterly investment newsletter, designed for long-term investors, 1 year, $50. For more information on the services offered by Hendershot Investments Inc., visit www.hendershotinvestments.com.