Mastercard and Visa pay shareholders more money to buy back shares

MasterCard and Visa Inc are the card majors that are skimping on the dividend payouts. They are both huge as well as promising cash generators who are more than willing to return more money to their shareholders by buying back shares.

MasterCard and Visa are buying back shares up to a tune of $1 billion. They are spending this amount on acquisitions this year. These card majors had narrowly escaped the financial crisis by a whisker due to the smart investments amounting to billions of dollars as well as unrestricted cash. As per the reports by analysts their cash piles are likely to continue growing.

Both the networks have the smallest dividend yields (0.7% Visa, 0.3% MasterCard) and the biggest stockpiles. The dividend that MasterCard could pay is over 27 times on the basis of the forward cash flow (Reuter’s data).

Shareholders feel that there should be an increase in dividends as this would set them apart from the rest of the banks and financial institutions. Most of these banks are not in a position to increase their dividends at the moment. So this would mean a great move by these card majors. Matt McCormick, Portfolio Manager, Bahl & Gaynor (also owns Visa shares) states that, both the card companies are in a good position and can afford to increase payouts the next year. However, he is a bit more optimistic of Visa raising its dividend this year as it has already done so in October by raising its dividend by 20%.

However, there has been no raise in dividend with MasterCard since 2007. Jennifer Stalzer, spokeswoman, has stated via email that the company has a commitment to return the cash to their shareholders in case they don’t reinvest the cash into the business. In the current scenario, share repurchases have taken precedence over dividend increases.

Investors are quite hesitant to make any unrealistic demands with regard to an increase in dividend as there is a lot of uncertainty with the legal as well as the regulatory aspects. The profits of both the companies are dependent on the U.S. rules and hence both these companies are playing wait and watch. There is a merchants’ lawsuit which is pending for a while now and this has to do with the rules for processing as well as the fees. As MasterCard went public much before Visa it would be exposed to the lawsuit more than Visa and hence needs to keep cash reserves in case of settlement.