Banking on three solid quarters of 2015, the board of MasterCard Inc. (MA – Analyst Report) announced incremental capital deployment plans, thereby augmenting shareholder return.

In an attempt to boost capital efficiencies, the company hiked its regular quarterly dividend by 19% to 19 cents per share from the prior payout of 16 cents. The raised dividend will be paid on Feb 9, 2016, to shareholders of record on Jan 8.

The increased dividend brings the annual dividend to 76 cents from 64 cents paid in 2015. At the current price, the raised annual payout generates a dividend yield of 0.8%, up from the prior yield of 0.7%.
Alongside this hike, the board of MasterCard sanctioned a new share repurchase program of up to $4 billion of its Class A common stock.

This new share buyback program will be effective after the completion of the current share repurchase program worth $3.75 billion. The company still has $786 million worth of shares available for buybacks, under the current buyback program.

Solid Capital Deployment

Prior to this in Dec 2014, MasterCard had escalated its quarterly dividend payout by 45.5% to 16 cents per share.The company had also hiked its dividend in Feb 2013 and Feb 2012. Before 2012, the company had increased its dividend payout by 66.7% in 2007 before taking a halt. This makes the latest payout hike the fifth since 2007.

Share repurchases of $3.5 billion, $2.0 billion and $1.5 billion were authorized in Dec 2014, Feb 2013 and Jun 2012, respectively. The quantity of share buybacks earlier rose to $2 billion in Apr 2011 from $1 billion sanctioned in Sep 2010.

Factors at Play

MasterCard has been able to maintain this dividend trend given its consistent cash flow generation. During the last reported quarter, the company generated $1.16 billion of free cash flow. Going forward, upbeat outlook on card spending, cross-border volumes, gross dollar value (GDV) and payment volume generation given the recent strategic alliances, global economies, and digital payments are likely to translate into improved financials.

Following the announcement, shares of MasterCard closed at $98.18 yesterday, up 0.4%.

Peer Take

MasterCard’s magnitude of its latest dividend hike has been higher than its bank-card network peers – Visa Inc. (V – Analyst Report) and American Express Co. or AmEx (AXP – Analyst Report) – which raised their dividend by about 17% and 12% in Oct 2015 and Apr 2015, respectively. Another banking and payment services giant, Discover Financial Services (DFS – Analyst Report) had increased its dividend by 17% in Apr 2015. These companies have been generously returning excess capital through share buybacks as well.

Zacks Rank

Currently, MasterCard carries a Zacks Rank #3 (Hold).