With 2016 returns of only 6%, which trailed the almost 10% rise in the S&P 500 (SPX) index, shares MasterCard Incorporated (MA) were arguably a disappointment last year. This is even though MasterCard stock performed much better than, say, the 0.61% rise in rival Visa, Inc. (V).
MasterCard shares closed Friday at $103.25 and have traded at all-time highs ever since the Purchase, N.Y.-based credit card issuer reported better-than-expected fiscal third quarter earnings. Where will the shares go in 2017? That's what investors want to know. Beyond strong growth prospects in the coming quarters owing to the end of lower-for-longer Fed policies, here are two reasons MasterCard stock can outperform in 2017. (See also: MasterCard Initiates $4B Buyback Plan, Boosts Dividend.)
Reason No. 1 - Strong Growth Prospects
MasterCard shares have fallen about 5% since reaching their all-time high of $108.25 on Oct. 31 on fears that the stock had become too pricey. However, MasterCard, which inked a deal last year to acquire some 92% of Vocalink Holdings Limited, a London-based firm that operates major payments technology platforms for the U.K, is seen as benefiting from strong growth opportunities through this acquisition and various alliances.
At the same time, MasterCard is moving its business more toward electronic payments, which should allow it to expand the number of customers it has worldwide. Plus, MasterCard's partnerships with the likes of PayPal Holdings, Inc. (PYPL) give it a way to grow its online payments volume while boosting its mobile payments initiatives. (See also: MasterCard Dives Into Artificial Intelligence.)
Reason No. 2 - Buying Back Stock
MasterCard still believes its own shares remain one of the better ways to invest its capital. Last month, the company not only announced a $4 billion stock buyback, it also raised the quarterly dividend by 3 cents per share. As it stands, MasterCard plans to buy around $5.3 billion worth of its shares in the next four to six quarters, considering it already had some $2.1 billion remaining under the current buyback program. (See also: Buyback Fever: What's Driving the Buying Spree.)
All told, MasterCard should be an ally to its shareholders in 2017, as the buyback program is likely to support any temporary dip in the share price. Meanwhile, the 16% jump in the quarterly cash dividend gives investors tons of incentives to be patient.