We have just published a list of 12 Best Safe Stocks for 2025. In this article, we'll take a look at where Mastercard Incorporated (NYSE:MA) stacks up against other safe dividend stocks for 2025.
2024 was a different year for US stocks, with the broad market rising more than 23% and the tech-focused NASDAQ gaining 29%. These impressive results were driven by the “Magnificent 7” group of stocks, which rose by almost 67%, along with many other large stocks. It marked the second consecutive year of gains of more than 20% for the broader market, which has not been seen since the late 1990s. Analysts and investors are optimistic about the future of the market, as 2024 has shown remarkable strength, suggesting that the positive trend can continue. However, regardless of the current outlook, investor sentiment can change rapidly due to factors such as global tensions, economic development, or unexpected events.
No matter how the market is trending, investors tend to gravitate towards safe stocks that provide stability, especially during tough times. Among these safe investment options, equity stocks are the most popular. These stocks are usually issued by companies with a reliable history of consistent dividend payments, usually from well-established sectors such as utilities, consumer goods, or health care.
READ MORE: 10 Best Dividend Kings Stocks to Invest in Now
Historical analysis consistently shows that equity stocks tend to outperform other asset classes throughout various market cycles. The report of T. Rowe Price pointed out that since 1926, dividends have accounted for about one-third of the total return of US stock dividends. From 1980 to 2019, a period marked by a sharp drop in interest rates, dividends contributed to 75% of the returns from the broader market. The report also pointed out that dividends are especially valuable in a low interest rate environment, providing stable cash flow when other fixed income options are less attractive. Once companies start paying dividends, they rarely stop, and most increase their payouts over time. Paying dividends can make a stock more attractive to investors, potentially increasing its value. Over the past decade, index profits have grown every year, with a compound growth rate of just over 7%. In strong markets, dividends boosted total returns, while in years with low or negative returns, such as 2020 and 2022, dividends played a major role in total return, helping to strengthen the portfolio.
Regarding the safety of dividends, analysts recommend that investors prioritize dividend growth rather than chasing yield traps. Dan Lefkovitz, Morningstar's Index group strategist, emphasized the importance of focusing on growth equities, highlighting that it is a different strategy from high-yield investing. He explained that the growth in profits reflects the company's strong competitive position and good prospects for the future. A growth equity portfolio is often closely aligned with the overall market in terms of sector distribution and growth versus value indicators, such as price and earnings ratios. Although it has a value-oriented approach, it is balanced and highly concentrated compared to a high-yield portfolio.
Companies with a history of increasing their dividends have generally outperformed those that do not pay dividends, all while experiencing less volatility. Although returns are not guaranteed and can fluctuate, especially in the current environment, they have played a significant role in improving overall returns over the years.
In this article, we scanned Insider Monkey's database of 900 hedge funds as of Q3 2024 to find stocks with sustainable payout ratios that are popular among hedge funds. We focused mainly on companies that regularly distribute dividends to their shareholders. From this initial selection, we narrowed down the list to include only those companies with a 5-year average payout ratio of less than 60%, indicating a strong financial position. After that, we identified the top ten companies that met these criteria and ranked them in ascending order of the number of hedge funds that were involved in each of them.
Why are we interested in stocks that hedge funds accumulate? The reason is simple: our research has shown that we can outperform the market by mimicking the stock picks of the best hedge funds. Our quarterly newsletter strategy picks 14 small and large stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percent. (see more details here).
Is Mastercard Incorporated (MA) the Best Safe Dividend Stock for 2025?
A woman using a payment terminal on her way out of a store showing payment products and solutions.
Number of Hedge Fund Owners: 131
5 Year Average Payment Rate: 20.20%
Mastercard Incorporated (NYSE:MA) is a New York-based credit card company that offers a variety of payment processing and related services to its consumers. The company's third quarter earnings caught the attention of investors. It reported revenue of 7.37 billion, representing a 13% increase from the same period last year. This growth was driven by strong consumer spending and continued demand for the company's services and solutions. Mastercard's cash position remained strong, ending the quarter with more than $11 billion in cash and cash equivalents, up from $8.6 billion at the end of December 2023. In addition, the company's operating cash flow reached nearly $10 billion, an increase from $7.8 billion alike. time last year.
Furthermore, Mastercard Incorporated (NYSE:MA) is up more than 18% over the past 12 months. The company has earned the confidence of investors through strong growth, strong competition, and the ability to withstand economic challenges. The company primarily generates revenue from swipe fees, which average just over 2% per transaction processed on branded cards. This simple but reliable business model works well in times of prosperity and protects the company from credit risks during economic downturns.
Mastercard Incorporated (NYSE:MA) announced a 15% increase in its quarterly dividend on December 17. This marked the company's 13th consecutive year of dividend growth, making MA one of the best dividend stocks on our list. It paid a dividend of $0.76 per share last time and an annual yield of 0.60%.
Montaka Global Investments made the following comments about MA in its Q3 2024 investor letter:
“Montaka has many duopolists in the financial services industry, including Visa and MasterCard Incorporated (NYSE:MA) in payments; and S&P Global in credit ratings and financial data services. These businesses have secured competitively important businesses and are growing reliably. But they also have new, potentially higher opportunities at hand. The market, however, appreciates this powerful combination, in our view.
According to Insider Monkey's Q3 2024 database, 131 hedge funds hold investments in Mastercard Incorporated (NYSE:MA), compared to 142 in the previous quarter. The stakes of these hedge funds have a total value of more than 17 billion dollars.
Overall, MA 2nd position on our list of the best safe dividend stocks for 2025. While we acknowledge the potential for MA to grow, our conviction lies in the belief that some AI stocks hold great promise to deliver high returns and do so within a short period of time. If you're looking for an AI stock that's more promising than MA but trades at less than 5 times its earnings, check out our report on The highest number of AIs.
READ THE FOLLOWING:The 8 Best Wide Moat Stocks to Buy Now again 30 Most Valuable AI Stocks According to BlackRock
Disclosure: None. This article was originally published on The inner monkey.
