Mastercard and its consistently strong performance
Blackrock Advisors increased its stake in Mastercard Inc (NYSE:MA) by $235 million. This company is indeed a favorite of many, and is a gem in everyone’s long term investment portfolio.
Mastercard Inc (NYSE:MA)’s business operation is solid, no doubt about that. Its net operating cash flow based on a Marketwatch compilation grew each year by 30% on the average within the last 3 years. Since 2008, the net operating cash flow never contracted and instead grew at a whopping 81% annually on average. The free cash flow is swelling at an average rate of over 30% each year during the last 3 years. And there are not many companies that can turn 40% of revenue into profits. Therefore, if you are in for some cash income, this stock is on top of the charts. The first 3 dividend payments (totaling $1.50 per share) in 2013 has already doubled that for the same period last year ($0.75). With a low, safe payout ratio based on cash flow of only 4.5%, there is a concrete reason to think the dividend is safe. In terms of volatility, Mastercard Inc (NYSE:MA)’s beta is 0.59, higher than the average of its competitors at 0.32 but is below 1 which means that it is less volatile compared to the market.
Credit businesses like Mastercard Inc (NYSE:MA) are strong even in trying times and at a period when the rest of the financial sector is barely getting by. The economic recovery phase will likely fuel the company’s thriving business even more and consequently its attractiveness. The outlook remains positive; the EPS is expected to grow by roughly 18% annually in the next 5 years. During the last 5, EPS had grown at an annual rate of 22%.
Conclusion
It is easy to see why the fund manager had picked Mastercard Inc (NYSE:MA) to be one of its top buys in the first quarter. It had chosen the rest perhaps because of the positive outlook. Indeed, the expectations for the financial sector is generally attractive in the current. But the risk of volatility is also undeniable. I strongly suggest that investors carefully pick from among companies that offer the least amount of such risk. That is why among these picks by Blackrock Advisors, I’d be more confident in recommending Mastercard Inc (NYSE:MA).
The article Why did Blackrock Advisors Bet Big on These Financial Companies? originally appeared on Fool.com and is written by Aubrey Tabuga.
Aubrey Tabuga has no position in any stocks mentioned. The Motley Fool recommends American International Group, Bank of America, and MasterCard. The Motley Fool owns shares of American International Group, Bank of America, and MasterCard and has the following options: Long Jan 2014 $25 Calls on American International Group. Aubrey is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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