PURCHASE, N.Y. – MasterCard will roll back the price of its stock with its first split as a public company. It also plans to reward shareholders with an 83 per cent increase in its dividend and spend up to $3.5 billion buying back its stock.
The manoeuvrs announced Tuesday is designed to provide another lift to a stock that has soared nearly twentyfold from its initial public offering price of $39 in May 2006. The stock closed Tuesday at $763.61, a run-up driven by MasterCard Inc.’s steadily rising profits as people increasingly rely on debit and credit cards instead of cash.
Stock splits are designed to widen the potential pool of investors by making it less expensive to buy individual shares. Although savvy investors often dismiss splits as a gimmick, they tend to generate more buzz about stocks. And a higher dividend pleases investors because it delivers more cash to stockholders as long as they hold on to their shares.
The 10-for-1 split calls for stockholders to receive nine additional shares for each one they already own. That means MasterCard will issue nearly 1.1 billion more shares next month, an increase that will dramatically drive down its stock price.
Based on Tuesday’s closing price, a 10-for-1 split will push the shares below $80. The split is scheduled to occur Jan. 21.
But MasterCard’s market value — $92 billion on Tuesday — would remain steady because of the increase in outstanding shares.
A new quarterly dividend of $1.10, or 11 cents after the split, will be paid Feb. 10. MasterCard’s dividend had been 60 cents.
In another show of confidence, the Purchase, N.Y., company also plans to spend an additional $3.5 billion buying back its stock. The new commitment will kick in after MasterCard exhausts the remaining $514 million left in a $2 billion budget earmarked for buying back stock. Buying back company shares can help boost a company’s earnings per share.