MasterCard (MA) — 10:1 split, buyback, dividend hike! What’s not to like? Not so fast, Grassho..
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I want to talk about MasterCard ( NYSE:MA ). The stock jumped up today it was like big, high profile guy because they announced, I think they’re increasing their dividend by 83 percent or something like that. They’re increasing their share buyback program, and they’re also going to split ten for one, meaning for each share of $790.00 stock that you own they will give you ten for $79.00. That’s a pretty good deal because a lot of people, for whatever reason, won’t buy ten $790.00 stocks, but they’ll buy a hundred $79.00 stocks, whatever your metric is.
So these stock splits apparently work, they also add a bunch of liquidity to it. But on this, I wouldn’t be buying MasterCard ( NYSE:MA ) just because of a stupid stock split; and I love stock splits. Last century, Wow! If you weren’t trading stock splits you weren’t trading. But here, the stock gapped up, can’t really gap up because of the dividend, it only pays .31 percent right now, and so they jack up the yield, they raise their dividend by like what, 80 percent, 85 percent. Okay, so big deal, so now it’s up to what a half a percent? It’s like .55 percent; the bottom line is that isn’t the deal.
What’s interesting to me is the buy back, if they’re going to continue to buy back their shares, okay that’s great, you’re taking some off the market. At the same time you’re increasing the liquidity by ten times because you’re doing a ten for one stock split. So what you’ve got to do is, I teach this stock split, I call it a strategy, but it’s really just a frame of reference; what you really want to do with MasterCard ( NYSE:MA ) is, once the stock has split take note of the price that it trades at when it splits, and then if the stock stays above that split price for a while then it’s okay to buy it, it’s okay to own it.
But if the stock, wherever it starts trading at, let’s say it split here, $790.00, so let’s say tomorrow it starts trading at $79.00, as long as it stays above $79.00 it’s fine to be owning that stock. If it starts trading below $79.00 then you know that part of the reason the stock has been up is just been a lack of liquidity so suddenly there’s ten times more shares on the market and it’s easier, trading is more liquid, suddenly the shares start to fall in price, you don’t want to be a part of that stock. So that’s a forward look at a stock split strategy, but for right now I would want to stay away from this stock until it fills a little bit of this gap, its got to come back here a little bit.
If however, and this is a big if, if it doesn’t, the high price was $801.00, you might set a price alert for $802.00. If MasterCard ( NYSE:MA ) starts trading above $802.00 go ahead and buy the stock, it’s going higher, you’d think that it wouldn’t, but when the stock came up to here, then started rolling over, who would have thought that 650.00 was not the top? These things do stuff that you don’t think they’re going to do, but afterwards you look at them and say like, “How could I have missed this?”
So wait for the stock to trade back into the gap, if it doesn’t do that and instead breaks out, that’s when you buy; one of two, it either breaks out above today’s intraday high and you’re buying, or it falls back into the gap, then starts showing some firmness and then you buy.