MasterCard's New Capital Plan: The Good, the Neutral, and the Ugly

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

MasterCard was up 3.5% on Wednesday after the payment card company announced a three-action capital plan that includes a 10-for-1 stock split, an 83% increase in the quarterly dividend, and a new $3.5 billion stock buyback authorization. Was the "pop" warranted?

There is no doubt the plan demonstrates management's confidence in the company's prospects and those of the industry, more broadly. In fact, the news had a similarly positive effect on shares of MasterCard's larger competitor and new Dow component Visa , which gained 3.1% on Wednesday, achieving fresh all-time highs. Both stocks have outperformed the S&P 500 this year, although MasterCard is the standout on that front, having risen 61% through Friday.

In the following video, Fool contributor Alex Dumortier argues that the capital plan may not be all it's cracked up to be and that the new share buyback program, in particular, raises questions regarding management's skill in terms of capital allocation.

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The article MasterCard's New Capital Plan: The Good, the Neutral, and the Ugly originally appeared on

Fool contributor Alex Dumortier, CFA, has no position in any stocks mentioned; you can follow him on Twitter: @longrunreturns. Mike Klesta has no position in any stocks mentioned. The Motley Fool recommends and owns shares of MasterCard and Visa. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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