It's not quite accurate to call Visa (NYSE:V) and Mastercard (NYSE:MA) a duopoly, because there are plenty of other major companies that focus on credit and debit cards and electronic payment systems. Yet the success that these two industry giants have shared makes them the first companies that most investors think of when they consider investments in the payment space.

Both Visa and Mastercard have rewarded their shareholders over the long run, taking full advantage of the opportunities close to home and across the globe to expand and popularize their respective payment networks. Some investors don't want to buy shares of both stocks, however, and they want to know which one is a smarter buy at current prices. Let's look more closely at Visa and Mastercard to see how they fare across a number of different industry benchmarks.

Mobile app running on a smartphone over a Visa reader at a cash register.

Image source: Visa.

Valuation and stock performance

Not only have Visa and Mastercard both had exceptionally strong returns over the past 12 months, but they've also seen almost exactly the same performance. Mastercard shares have risen 53% since January 2017, while Visa is up 51%.

From a valuation perspective, the two stocks have greater differences, but they tend to cancel each other out. When you use simple valuation methods based on recent earnings, Visa looks more expensive, with a trailing earnings multiple of 44 compared to Mastercard's 39. However, adding in expectations for near-term future earnings, the two stocks trade places. Mastercard's current stock price is about 30 times forward earnings estimates, compared to just over 25 for Visa. Both stocks are relatively expensive compared to the market, but beyond that, which looks like the better bargain depends on how much credibility you put in predictions about their immediate growth prospects.

Dividends and capital allocation

Visa and Mastercard have traditionally shown little interest in rewarding their shareholders with dividends, and for the most part, their behavior continues to confirm this. Both stocks have dividend yields of roughly 0.6%, which is less than a third of the overall stock market average.

Part of the conundrum both companies face is that their share prices have risen at a faster rate than their payouts. For example, Mastercard just announced a 14% dividend increase this month, which will bring the annual payment to an even $1 per share. That's a good-sized boost, but it pales in comparison to 50%+ returns for the stock. Similarly, Visa's 18% hike in November had only a minimal effect on yield despite its being consistent with the card network's dividend growth rate in past years.

Instead, the two companies have used stock buybacks much more prevalently. Mastercard's repurchases have been in the $3 billion to $4 billion range for years. Visa has ramped up its buyback activity to an even greater extent recently, spending almost $7 billion over the past four quarters. From a capital allocation perspective, Visa has a slight edge, but both try to be shareholder-friendly in their own ways.

Growth prospects and risks

It's hard to find fault with the work that either payment company has done lately. For Visa, the rise of e-commerce has been a powerful trend that has made it more important than ever for companies and their customers to have a safe and secure payment method, and Visa has done well to foster confidence in its brand. In the past, there was a perception that card-based solutions weren't appropriate for very small transactions, with some merchants imposing minimum purchase amounts for customers using credit cards to offset the their transaction costs. Now, greater use of mobile devices requires micropayments, and merchants have embraced the convenience of payment systems that fit well with mobile strategies even if they incur some incremental costs. Lower transaction costs are also appealing to Visa customers. With global economic conditions improving and the integration of the formerly independent Visa Europe unit having gone fairly smoothly, Visa is in good position for a strong 2018.

Many of these same trends benefit Mastercard as well. Yet one way in which Mastercard is distinguishing itself is by adding capabilities through smart acquisitions. The payment network's purchase of Applied Predictive Technologies three years ago has helped merchant customers apply data analytics to their businesses, adding value to the merchant relationship. More recently, takeovers have added important capacities like fraud detection and prevention through the use of biometric authentication and artificial intelligence, with dramatic cost reduction implications for Mastercard. Mastercard's awareness of the important of global expansion has given it a slight edge over Visa, and investors hope it will continue to make progress on that front to catch up to its longtime rival.

Your winner

It's hard to choose between Visa and Mastercard from a fundamental perspective, because both are so well-placed to take advantage of favorable conditions in the industry. Purely from a short-term perspective, the fact that Visa will get greater exposure from its promotion of the Olympic Games makes a good tiebreaker, but either of these stocks stands to do well for investors in the years to come.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.