Mastercard (MA -0.07%) and Visa (V 0.33%) have a lot in common. Between them, they dominate the payment processing market. They each rake in billions in annual revenue and profits. Both companies pay dividends, regularly buy back their own stock, and have created a tremendous amount of wealth for their shareholders.
So, which of these financial titans is the better investment opportunity to add to your portfolio today?
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Growth
Visa and Mastercard each operate a global electronic payments network, making them vital middlemen between merchants with consumers. Each earns a small fee every time a payment is made on its network. With billions of cards in circulation and trillions of dollars flowing their networks every year, those small payments add up fast.
Visa currently holds the title for the largest network. It processed $2.2 trillion worth of transactions last quarter, and 3.35 billion Visa-network payment cards are out in the wild right now.
Visa grew into the giant that it is today mostly from the consumer market, but it's now turning its attention to business-to-business (B2B) transactions. Most of those payments still occur using an automated clearing house, cash, or checks, but Visa is gaining share by offering payment arrangements solutions for businesses. This is a massive opportunity for the company that should drive decades of growth.
Visa's profits have grown at a 20% annualized rate over the past five years thanks to a combination of double-digit revenue growth, margin improvements, and stock buybacks. Market watchers are currently predicting 16% annualized growth over the next five. That's a strong number that should excite growth investors.
Mastercard operates the second-largest credit card payment network in the world, and that's still massive in raw terms. Last quarter, the company process $1.55 trillion worth of transactions and there were 2.5 billion Mastercard and Maestro-branded cards in circulation.
Mastercard has been steadily gaining market share in the consumer market in recent years by focusing on growing cross-border transactions and bolstering its service offerings. That strategy has helped the company to retain its existing customers and win more new business when it competes with its archrival.
Like Visa, Mastercard's long-term growth rates have been highly impressive. Profits have grown at a 20% annualized rate over the last half-decade thanks to the same combination of double-digit revenue growth, margin improvements, and regular stock buybacks. Wall Street currently predicts 21% annualized growth over the next five years.
Both of these companies should be attractive to growth investors, but Mastercard's higher expected growth rate gives it the edge here.
Winner: Mastercard
Value
Visa usually trades at a premium to the S&P 500, and that's certainly the case today, with its price-to-earnings ratio of 34. However, the number drops to about 25.6 when using next year's earnings estimates.
Mastercard stock also trades at a premium to the market -- around 42 times trailing earnings. This ratio drops to 26.5 when looking at the next year's estimated earnings.
Those are very similar forward earnings multiples, but since Visa's trailing P/E valuation is slightly cheaper, it takes the prize in this category.
Winner: Visa
Income
Visa and Mastercard both reward their shareholders with dividend payments.
Visa has been paying out a growing dividend for a decade. While its current yield of 0.63% looks very small, the dividend is consuming about 22% of earnings. That means it has plenty of capacity to increase its payouts.
It is a similar story with Mastercard. The company first initiated a small payment seven years ago, and has raised it every year since. The company's yield of 0.56% is also quite low, but the dividend only consumes about 21% of profits, which, again, gives management ample ability to hike the payout.
These companies have both raised their dividends at a rapid pace over the last five years, too.
V Dividend data by YCharts
The data is so similar here that there really isn't a clear winner to my eye.
Winner: Tie
The better buy
I firmly believe that both of these businesses are highly attractive investment opportunities. Both are growing rapidly, pump out steadily increasing profits, and have long runways ahead. That's why you'll find both of these stocks in my personal portfolio.
However, if forced to choose, I'd be inclined to give the edge to Mastercard right now since it is gaining market share, and analysts estimate it will grow at a slightly faster growth rate over the next five years. That's a winning combination, especially since it only trades at a tiny premium to Visa.
