Mastercard Inc (MA): Can a Near $600 Stock Be Cheap?

The second way that MasterCard seems to be a slightly better performer than Visa is, the company is growing its operating cash flow at a faster rate than its peer. In the last quarter, MasterCard grew its core operating cash flow (net income + depreciation) last quarter by 12.5%. While Visa reported decent growth by the same measure of 11.7%, every little bit helps and MasterCard’s faster growth may lead to better dividends and share repurchases.

Each Company Can Do More, and That Is a Good Thing
Whereas Mastercard Inc (NYSE:MA) is performing slightly better than Visa in a few respects, when it comes to the company’s core free cash flow (net income + depreciation – capital expenditures) payout ratio there is no one better. In the last quarter, MasterCard only used 4.58% of its core free cash flow on dividend payments.

By comparison, Visa paid 12.59%, Discover paid 14.01%, and American Express paid 16.81%. As you can see, none of these companies is exactly stretching their budget to pay the dividend, but with the lowest payout ratio, and significant growth ahead, MasterCard theoretically should reward investors more handsomely.

I realize that paying nearly $600 per share is difficult for smaller investors. However, investors need to remember that buying a stock for $50 doesn’t mean that it’s a bargain any more than a $600 stock is expensive. Given Mastercard Inc (NYSE:MA)’s strong organic growth profile, better financial performance than its peers, and potential for increased dividends, this is a seemingly expensive stock that actually appears pretty cheap.

The article Can a Near $600 Stock Be Cheap? originally appeared on Fool.com and is written by Chad Henage.

Chad Henage has no position in any stocks mentioned. The Motley Fool recommends American Express, MasterCard, and Visa. The Motley Fool owns shares of MasterCard. Chad 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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