The next time you are at the grocery store or department store, see how many people pay cash. Likely fewer people do for they use debit or credit cards. Next consider who owns the credit cards, it is not the banks, the banks are the distributors of the cards, it is Visa and Mastercard with a 90% share or higher. The rails or wires that connect the machines are propelling the credit card companies shares higher. It is also the reason why instead of being in the financial part of the index, they are in the technology part of the index. The rails and dominance of the companies imply the companies are a long term buy.
In a recent article by Lewis Krauskoff of Reuters, he interviewed analysts who suggested the Visa and Mastercard stocks will become trillion dollar valuation stocks. The facts are in early February, Visa’s valuation was $449 billion and Mastercard’s valuation was $324 billion. The billion dollar valuation includes companies such as Apple, Microsoft, Alphabet and Amazon. The price of Visa would have to double and Mastercard go up 3 times, it is possible yes, likely in 2020 no.
The stock price has soared for the companies as well as revenue and at the moment 43% of consumer purchases are made in a digital form, that is up from 28% in 2010. Will it go higher, highly likely.
Visa has 60% share of the credit and debit card market, Mastercard has 30% and American Express has 8.5%. The rest fight over the 2.5% of the market.
Linking to dividend paying stocks, the reason to own the shares is the revenues and dividends have been growing, but also Visa and Mastercard have 90% of the infrastructure for credit and debit cards to work. Both cards have a high margin to make money. Full disclosure, the writer owns both shares. Will they be $1 trillion valuation, it would be nice, but trying to find monopoly like companies who consistently increase their dividends is good enough. The revenues will pay for the dividends and being profitable will send the P/E ratios higher as investors want to own profitable companies.
There are more questions than answers, till the next time – to raising questions.