We recently published a list of 12 Best Safe Dividend Stocks for 2025. In this article, we are going to take a look at where Mastercard Incorporated (NYSE:MA) stands against other best safe dividend stocks for 2025.
The year 2024 was exceptional for US stocks, with the broader market climbing over 23% and the tech-focused NASDAQ gaining 29%. These impressive results were driven by the “Magnificent 7” group of stocks, which rose nearly 67%, alongside several other large-cap stocks. It marked the second consecutive year of over 20% gains for the broader market, a feat not seen since the late 1990s. Analysts and investors are optimistic about the market’s future, as 2024 demonstrated remarkable strength, suggesting the positive trend could continue. However, despite the current upbeat outlook, investor sentiment could shift quickly due to factors such as global tensions, economic developments, or unforeseen events.
No matter how the market trends, investors tend to gravitate towards safe stocks that offer stability, particularly during challenging times. Among these secure investment choices, dividend stocks are especially favored. These stocks are typically issued by companies with a reliable history of consistent dividend payments, often from well-established sectors such as utilities, consumer goods, or healthcare.
READ ALSO: 10 Best Dividend Kings Stocks to Invest in Now
Historical analysis consistently shows that dividend stocks tend to outperform other asset classes across various market cycles. A report by T. Rowe Price highlighted that since 1926, dividends have accounted for nearly one-third of the total equity returns for US stocks. From 1980 to 2019, a period marked by a significant decline in interest rates, dividends contributed to 75% of the returns from the broader market. The report further mentioned that dividends become especially valuable in a low-interest-rate environment, offering a steady cash flow when other fixed-income options are less attractive. Once companies start paying dividends, they rarely stop, and most increase their payouts over time. Paying dividends can make a stock more appealing to investors, potentially boosting its value. Over the last decade, dividends for the benchmark index have grown annually, with an average compound growth rate of just over 7%. In strong markets, dividends have enhanced total returns, while in years with low or negative returns, such as 2020 and 2022, dividends played a larger role in total returns, helping to bolster portfolio resilience.
Regarding the safety of dividend stocks, analysts recommend that investors prioritize dividend growth rather than chasing yield traps. Dan Lefkovitz, a strategist with Morningstar’s Index team, stressed the importance of focusing on dividend growth, highlighting that it is a distinct strategy from high-dividend investing. He explained that dividend growth reflects a company’s strong competitive position and positive future prospects. A dividend growth portfolio tends to align more closely with the overall market in terms of sector distribution and growth versus value characteristics, such as price-to-earnings ratios. While it has a value-oriented approach, it is more balanced and core-focused compared to a high-dividend portfolio.
Companies with a history of consistently raising their dividends have typically outperformed those that don’t pay dividends, all while experiencing less volatility. While dividends are not guaranteed and can fluctuate, especially in the current environment, they have played a substantial role in enhancing overall equity returns over the years.
Our Methodology
For this article, we scanned Insider Monkey’s database of 900 hedge funds as of Q3 2024 to find stocks with sustainable payout ratios popular among hedge funds. Our focus was on companies that consistently distribute dividends to their shareholders. From this initial selection, we narrowed down the list to include only those companies with a 5-year average payout ratio below 60%, indicating a robust cash position. Subsequently, we identified the top 10 companies meeting these criteria and arranged them in ascending order of the number of hedge funds that held stakes in each of them.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A woman using a payment terminal at the checkout of a store showing payment products and solutions.
Mastercard Incorporated (NYSE:MA)
Number of Hedge Fund Holders: 131
5-Year Average Payout Ratio: 20.20%
Mastercard Incorporated (NYSE:MA) is a New York-based credit card company that offers a wide range of payment processing and related services to its consumers. The company’s third-quarter earnings grabbed investors’ attention. It reported $7.37 billion in revenue, reflecting a 13% increase from the same period the previous year. This growth was driven by robust consumer spending and continued demand for the company’s value-added services and solutions. Mastercard’s cash position remained strong, ending the quarter with over $11 billion in cash and cash equivalents, up from $8.6 billion at the end of December 2023. Moreover, the company’s operating cash flow reached nearly $10 billion, an increase from $7.8 billion in the same period last year.
In addition, Mastercard Incorporated (NYSE:MA) is up by over 18% in the past 12 months. The company has garnered investor confidence with its robust growth, substantial competitive edge, and ability to withstand economic challenges. The company mainly generates revenue through swipe fees, averaging slightly over 2% per transaction processed from co-branded cards. This simple yet dependable business model performs well in prosperous times and shields the company from credit risks during economic slowdowns.
Mastercard Incorporated (NYSE:MA) declared a 15% increase in its quarterly dividend on December 17. This marked the company’s 13th consecutive year of dividend growth, which makes MA one of the best dividend stocks on our list. It now pays a quarterly dividend of $0.76 per share and has a dividend yield of 0.60%, as of January 13.
Montaka Global Investments made the following comment about MA in its Q3 2024 investor letter:
“Montaka owns several duopolists in the financial services industry, including Visa and Mastercard Incorporated (NYSE:MA) in payments; and S&P Global in credit ratings and financial data services. These businesses have competitively protected and reliably growing core businesses. But they also have newer, high-probability adjacent opportunities. The market, however, is underappreciating this powerful combination, in our view.
For Visa and Mastercard, their core businesses in global payment processing are being complemented by significant growth in two areas: New processing opportunities in peer-to-peer, business-to-business, business-to-consumer, and government-to-consumer payments; and Value-added services, including risk, fraud-detection, issuance, acceptance, and open banking.”
As per Insider Monkey’s database of Q3 2024, 131 hedge funds owned investments in Mastercard Incorporated (NYSE:MA), compared with 142 in the previous quarter. The stakes owned by these hedge funds have a total value of more than $17 billion.
Overall, MA ranks 2nd on our list of best safe dividend stocks for 2025. While we acknowledge the potential for MA to grow, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than MA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
