Better Dividend Stock: Mastercard vs. Visa

Mastercard (NYSE: MA) and Visa (NYSE: V) are incredibly similar payment processing companies with comparable product offerings and overlapping customers. As investments, both stocks have reliable track records and grow their dividends consistently, making them solid choices for investors seeking steady income with minimal risk.

But which one is the better buy right now? While they may seem almost identical, differences in financials, capital allocation strategies, and stock valuations could tip the scales. Let's take a closer look to see which one stands out today.

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Here are the recent financial results for Mastercard and Visa

Before digging into the financials of these two payment giants, it's important to note that Visa has a higher market capitalization at $674 billion compared to Mastercard's $519 billion, meaning it is the larger of the two companies and will have higher overall. Mastercard and Visa recently reported their December 2024 quarterly results, so let's look at their top and bottom lines to get a sense of each company's recent growth.

During fourth-quarter 2024, Mastercard generated $7.5 billion in net revenue, translating to net income of $3.3 billion. These figures represent year-over-year growth of 14% and 20%, respectively. In comparison, Visa generated $9.5 billion in net revenue and $5.1 billion in net income for the fiscal first quarter, equating to year-over-year growth of 5%.

While Mastercard is currently outpacing Visa in growth, Visa maintains a critical advantage -- its operating margin remains an industry-leading 66%, compared to Mastercard's 56.3%. Operating margin is a key metric because it demonstrates a company's ability to generate operating profit after accounting for operating expenses and the cost of goods sold.

Data source: Mastercard and Visa. Chart by author. YOY=year over year.

Overall, let's give Mastercard the slight edge for growing its top and bottom lines at a better clip than Visa. Still, it is important to note Visa's best-in-class operating margin as an honorable mention.

Mastercard and Visa prioritize shareholders

Mastercard and Visa management teams have similar capital allocation strategies in that they both regularly increase their dividends and repurchase shares of their companies. Both strategies benefit shareholders, with income in the case of dividends and increased ownership in the case of stock buybacks.

First, Mastercard has paid and raised its dividend for 14 consecutive years. Its most recent raise was 15%, bringing its quarterly dividend to $0.76 per share or 0.54% annual yield. Mastercard's payout ratio -- the percentage of a company's earnings paid out as dividends -- is notably low at 19%. For reference, a prolonged payout ratio of 75% or higher usually signals that a stock's dividend is in danger of being cut or dropped altogether.

Visa has paid and raised its quarterly dividend for 16 consecutive years, with its last raise coming in at 13%. Today, Visa pays a quarterly dividend of $0.59 per share, which equates to an annual yield of 0.68% and a payout ratio of about 22%.

Both companies regularly participate in share repurchases in an effort to consistently lower their share count. Over the past three years, Mastercard lowered its shares outstanding from 980 million to 914 million, a decrease of 6.7%. Meanwhile, during the same period, Visa reduced its shares outstanding from 2.13 billion to 1.93 billion, a decrease of 9.4%.

Neither management appears to be slowing down soon. At the end of the most recently reported quarters, Mastercard had $15.1 billion remaining on its share repurchase programs, and Visa had $9.1 billion remaining.

MA Shares Outstanding data by YCharts.

Overall, both companies represent some of the most shareholder-friendly stocks available on the public market. Still, Visa has a slight edge in this category, given its higher annual yield and share count reduction over the past few years.

An overview of Mastercard's and Visa's valuations

Considering these competitors' similarities, one last comparison we can make is each stock's valuation. For well-established companies such as Mastercard and Visa, the price-to-earnings (P/E) ratio -- measuring a company's current market price to its trailing 12 months of earnings per share -- fits the bill. As of this writing, Mastercard and Visa traded at P/E ratios of 41 and 35, respectively. Since Mastercard has a higher growth rate, it historically has a higher P/E ratio, with its five-year median being 38 compared to Visa's 32.

MA PE Ratio data by YCharts.

With that said, both management teams expect their respective revenue to grow in the low double digits for their respective fiscal 2025 years. There's an argument that Mastercard may not deserve the same premium as it has enjoyed in recent years. Additionally, Visa has a slightly better balance sheet, with $6.3 billion in net debt compared to Mastercard's $9.5 billion.

Given those factors, Visa is the better value stock and wins the final category.

Is Mastercard or Visa the better stock for dividend investors?

To reiterate, both Mastercard and Visa have proven to be fantastic long-term investments, and there's no reason to doubt their futures or continued dividend growth potential. However, if you were to pick between the two right now, Visa would be the better stock because of its higher dividend yield, comparable growth projections, and more attractive valuation.

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Collin Brantmeyer has positions in Mastercard and Visa. The Motley Fool has positions in and recommends Mastercard and Visa. The Motley Fool has a disclosure policy.