Dividend Increase | Mastercard (MA)

Dividend | Dividend Growth | Financial Independence | Freedom | Passive Income
Getting a pay raise while sitting on the couch?  Sign me up!  Thanks Mastercard for another dividend increase!

There's an old Chinese proverb that says "the best time to plant a tree was 20 years ago, the next best time is now".  The reason for this is that it takes time for a tree to grow and prosper and for you to start reaping its benefits.  Dividend growth investing is much the same way.  It takes consistent saving and investing as well as time and patience to let the power of dividend growth take hold.

That's why one of my favorite things is when one of the companies I own decides to pay out more in dividends.  You mean I get a pay raise just for owning a small piece of a company?  Not going and doing R&D for new products or technology.  Not selling any products.  Not managing any employees or inventory.  Not making sales calls.  All I had to do was have the foresight to invest some of my savings in excellent companies.  

On November 30th the Board of Directors at Mastercard (MA) approved an increase in the quarterly dividend payment.  The dividend was increased from $0.44 to $0.49 which is an excellent 11.4% increase.  Mastercard is a Dividend Contender with 10 consecutive years of dividend growth.  Shares currently yield 0.62% based on the new annualized payout.

The new dividend will be payable February 9th to shareholders of record as of January 7th.

Since I own 33.349 shares of Mastercard in my FI Portfolio, this raise increased my forward 12-month dividends by $6.67.  This is the 2nd raise that I've received from Mastercard since initiating a position in 2020.  Total organic dividend growth over that time is 22%.

A full screen version of this chart can be found here.

Mastercard initiated their dividend in 2006 and quickly set about with rapid dividend growth.  Unfortunately the recession took its toll and Mastercard maintained their dividend for the follow 3 years before resuming rapid growth once again in 2012.  

Dating back to 2006 there's been 17 years with annual dividend growth ranging from 0.0% to 109.5% with an average of 32.1% and a median of 17.3%.

There's also been 12 rolling 5-year periods with annualized dividend growth ranging from 10.8% to 66.2% with an average of 33.3% and a median of 26.5%.

Over that same period there's been 7 rolling 10-year periods with annualized dividend growth ranging from 32.2% to 43.4% with an average and median of 35.7%.

The 1-, 3-, 5- and 10-year rolling dividend growth rates from Mastercard since 2006 can be found in the following chart.  

A full screen version of this chart can be found here.

For dividend yield theory I consider the fair value range to be the forward dividend yield +/- 10% compared to the 3 year moving average, the under/over value area to be to between 10%-20% deviation from the average and significant over/under value are greater than a 20% deviation from the average.

A full screen version of this chart can be found here.

Mastercard's 3-year average forward dividend yield is 0.52% which corresponds to a share price of $377 based on the new annualized payout.  

I consider the fair value range based on dividend yield theory to be the 3-year moving average yield +/- 10%.  That gives a fair value range of $344 - $417 and suggests that shares are trading below fair value at the current price around $315.

Another quick and dirty valuation method is the Gordon Growth or Dividend Discount model.  This valuation method is based solely off the expected future dividends as well as your required return.  Based on a 10% discount rate and assuming Mastercard can maintain 9.25% annual dividend growth shares are worth around $286 per share.

A full screen version of this chart can be found here.

The above chart shows the DDM valuation using the 9.25% growth rate and 10% discount rate in comparison to the share price over time.  

Wrap Up

This raise increased my forward dividends by $6.67 with zero effort on my part.  That's right, absolutely nothing to contribute to their operations.  Based on my Rollover IRA's current yield of 1.91% this raise is like I invested an extra $349 in capital.  Except that I didn't!  One of the companies I own just decided to send more cash my way. 

That's how you can eventually reach the crossover point where your dividends received exceed your expenses.  That's DIVIDEND GROWTH INVESTING AT WORK!  The beauty of the dividend growth investing strategy is that you build up your dividends through fresh capital investment as well dividend increases from the companies you own.

I've now received 24 raises from the companies in my Rollover IRA increasing my forward-12 month dividends by $282.17.

My FI Portfolio's forward-12 month dividends are $9,119.27  Including my FolioFirst portfolio's forward dividends of $178.20 brings my total taxable accounts dividends to $9,297.47.  My Roth IRA's forward 12-month dividends are $888.08.  My Rollover IRA's forward dividends are $4,026.42.  Across all accounts I can expect to receive $14,211.97 in dividends over the next year.

I've also started compiling dividend data on many of the companies that I own or would like to own.  Mastercard's can be found here which includes the dividend history (as far back as I can find without spending hours hunting it down), rolling dividend growth rates and dividend yield theory.  To see other companies that I've already gathered the data on you can check out the Dividend Companies page.  Check it out and let me know what you think.

Do you own shares of Mastercard?  Do you think they can continue on with at least low double digit dividend growth for a significant length of time?  How do you weigh business quality/growth versus valuation?

Please share your thoughts below.