Better Credit Card Stock: Visa vs Mastercard? The world of investing offers would-be buyers a plethora of options where to place their investment capital. That includes stocks that offer growth, high yields, dividend growth, value, or some combination of those factors. Depending upon one’s goals and time frame, certain stocks are better fits than others for particular situations.

We see blue-chip stocks as the best way to gain exposure to long-term winners, as these are stocks that have long histories of paying increasing dividends to shareholders. Among the group, there are plenty of stocks that offer high yields, dividend growth, earnings growth, value, or some combination of these factors. In this article, we’ll look at two premier high-growth dividend growth stocks, payments rival Visa (V) and MasterCard (MA).

Visa (V)

Our first stock is Visa, a payments technology company that operates worldwide. The company has a vast network of payments infrastructure that affords consumers, merchants, financial institutions, businesses, and governments the ability to move money globally.

The company was founded in 1958, produces about $24 billion in annual revenue, and trades with a market capitalization of $476 billion, making it one of the largest financial companies in the world by that metric.

Visa’s growth over its lifespan as a public company has been nothing but exemplary. For example, between 2009 and 2019, Visa’s earnings-per-share averaged 22% per year for a period of ten years. The company’s massive scale makes consistent growth numbers like that quite difficult to achieve going forward, but we still expect 12% annual earnings-per-share growth for Visa.

We see the unstoppable transition of consumers out of cash and into digital payments as a persistent tailwind, and Visa very much has the first-mover advantage, given its digital payments infrastructure is among the most mature in the world. There are significant new competitors in the space, but it will take a gargantuan effort to supplant Visa’s long-held dominance.

We see international growth as a key catalyst for Visa, particularly in Asia, where a burgeoning middle class in both China and India, which collectively have about 2.5 billion people, but are relatively undeveloped economically. Visa has a massive opportunity to continue to grow in the coming years globally, but particularly in these sorts of markets.

The stock trades today at 39 times earnings, which is steep irrespective of the comparison. The stock has traded with price-to-earnings ratio (P/E) multiples in the mid-20s for much of its life, and we assess fair value at 25 times earnings. Given the big disconnect between fair value and the current valuation, we see a sizable 8%+ headwind to total returns in the coming years. However, with 12% forecasted growth and a 0.6% dividend yield, total returns should still be positive at 3.2% annually.

Visa has a very bright future fundamentally, but the stock is quite expensive and already pricing in a lot of growth today.

Source: Portfolio Insight*

Mastercard (MA)

Our other subject is Mastercard, another payments technology company headquartered in the US. Mastercard provides transaction processing and other payments products and services internationally, similar to Visa. Mastercard also counts merchants, individuals, financial institutions, governments, businesses, and others among its customers. Mastercard also provides ancillary services such as cyber intelligence products, analytics, consulting services, and more.

Mastercard was founded in 1966, generates almost $19 billion in annual revenue, and trades with a $340 billion market capitalization.

Mastercard’s earnings-per-share growth rate has been impressive over the past decade, averaging 15% annually. We see this as sustainable for the time being and forecast 15% growth annually over the next five years.

This growth should accrue primarily from higher revenue, with smaller amounts of growth from buybacks and margin expansion, respectively. Like Visa, Mastercard is highly leveraged to digital payments and consumers moving away from cash transactions. Digital payments continue to take share from cash transactions, and Mastercard stands to gain from this.

Mastercard also has exposure to both developed and underdeveloped economies throughout the world, similar to Visa, and enjoys a scale advantage given its decades-long operating history. We see ample room for both Visa and Mastercard to grow at significant rates in the coming years given the growth expected for digital payments globally.

Like Visa, Mastercard is priced for perfection today, trading for 43 times our earnings estimate for this year. We assess fair value at 27 times earnings, so we forecast a sizable 8.9% headwind to annual total returns. The yield of 0.5% and growth of 15% annually should more than offset that, but we still see just 5.4% total annual returns in the coming years.

Source: Portfolio Insight*

Visa vs Mastercard Stock – Which One Comes Out On Top?

From a fundamental perspective, Visa and Mastercard have many similarities. They’re both known for their installed base collectively of billions of credit and debit cards globally, as well as their digital payments infrastructure. Both companies operate as toll booths of sorts for digital commerce, and that has proven to be enormously profitable for both over the decades. From a purely business perspective, the stocks are quite similar in most ways.

The dividend yields are also similar, with a nearly imperceptible 0.1% difference in the current yields. Neither stock is a high-yield issue, and given the valuations, neither is likely to be one for a long time. What both stocks offer are a decade-plus streak of dividend increases, and strong dividend growth rates. As both companies mature, we continue to expect double-digit growth rates in the dividend for the foreseeable future.

Both stocks are also quite overvalued, as both are trading well in excess of our estimates of fair value. Both stocks face sizable headwinds to total returns as a result, but given Mastercard’s higher forecasted growth rate, we give the nod to Mastercard on a total annual return basis.

Final Thoughts on Visa vs Mastercard Stock

Payments stocks offer massive growth potential in the coming years, and we see blue chips Mastercard and Visa as well-positioned to take advantage. Both companies have tremendously expensive infrastructure already in place, which gives them a big advantage over those that would try to supplant their long-held dominant competitive positions. Both stocks are quite overvalued according to our model, but high rates of forecasted growth for both should overcome that over time. In the battle of Visa vs Mastercard stock, total expected returns are modest in both cases, but Mastercard has a slight advantage over Visa on that front.