Mastercard vs Visa - Which is the Better Opportunity?

追加: 2026-05-30

[00:00:00]which is the better opportunity in today's market, Mastercard stock ticker MA or Visa, stock ticker V. And the reality is if we look at both of these stocks relative to the S&P 500, they have drastically underperformed over the last year. Mastercard down by 14.3%, Visa almost down by 10%. Meanwhile, the S&P 500 in the last year up 27%. So in the case of Mastercard, we're talking about a 40% difference. And the data doesn't get much better if you simply look at it year-to date as well. Visa down by around 8%, Visa down by about 8%, Mastercard almost 14%, S&P 500 up 10%. What's going on with these stocks?

[00:00:42]These are companies that historically speaking have been way outperforming the market. They're capital-like compounders. Have grown revenue and earnings and free cash flow at a high rate with incredible profit margins. For example, look at the 10-year returns for these stocks. over 400% gains, over 300% gains, and the stocks in total have grown their dividend by over 100% over the last 5 years. They've more than doubled the amount they're paying out in dividends. And it's even crazier over the last 10 years, almost a 500% increase in the amount paid out from Mastercard and dividends. So, there's a lot to break down in this video. What's going on? Why are these stocks underperforming? Is now an opportunity?

[00:01:18]And which of these opportunities is best? If so, Mastercard or Visa? Let's go ahead and dive in. But first, I'd like to say thank you to Dividend Wealth for sponsoring this video, where you can currently get 40% off at the link in the description. If you're tracking dividends by hand, then you're making a massive mistake. Dividend Wealth can completely automate your portfolio tracking. Dividend Wealth shows you exactly what you can expect in dividend payments every single month and even years into the future. You can see your annual income, monthly dividends, and year-to- date realized dividends, and even your projected total. You can set your assumptions and make some goals to see exactly how far away you are to achieving your long-term goals. You can closely track your holdings and even see things like yield on cost. And perhaps most importantly, in my opinion, is you can see your allocation versus income by sector. In this example portfolio, you can see while the allocation to energy is only about 12.5%, it makes up 16 to 17% of the total income. Something you need to be aware of. And of course, you can see exactly when those dividend payments will come in by utilizing the dividend calendar. Now is the time to quit guessing and take control of your portfolio. Scan the QR code or use the link in the description and use code dividendology 25 to get 40% off link in the description. Now, anytime we see a stock that is down significantly in the last year or down any whatsoever, take Mastercard for example. We can see in the last year they're down by a little over 14%. One of the questions we need to ask ourself is the stock is down 14%.

[00:02:44]What has happened during that time period? Even better, look at it over the last 5 years. Mastercard is up by 36.23%.

[00:02:52]So, what's happened with Mastercard's earnings over the last 5 years? Well, if we jump over to the stock screener, come up here and plug in Mastercard, the data will automatically load in thanks to the help of ticker data. And what we can see is Mastercard EPS earnings per share in 2020 was $6.40 and by 2025 was $1655.

[00:03:12]Now, for those of you that can't really do math straight off the top of your head, that's more than 100% growth. In fact, it's closer to around 150 160% total EPS growth over the last 5 years.

[00:03:25]So, keep that number in your mind. 160% EPS growth over the last 5 years. But when we look at the share price appreciation in the last 5 years, it's only 36.23%.

[00:03:36]What happens to a stock when they're growing earnings at a much faster rate than the share price is climbing? Well, naturally, it means the valuation is coming down. It's coming down significantly. And that's exactly what's happened to Mastercard and Visa as well along with it. In fact, just take a look at the valuation multiples for these stocks. What we're looking at is the price to earnings multiple over the last 5 years. As a result of earnings climbing substantially, despite the fact the share price has still climbed somewhat, we can see the valuation has come down dramatically. At one point back in 2021, Mastercard was trading at a PE multiple of above 40. Visa climbing close to 40 in some instances. But we can see this has dropped dramatically and they're both now trading at their lowest valuation multiple in the last 5 years. This is quite literally the cheapest these stocks have been in the last 5 years, at least from a PE multiple perspective. The question we have to ask is this justified? Because if future earnings growth potential from these stocks has been hampered, if the outlook has been hampered, if the company is losing its moat, then they can no longer justify as much of a valuation premium. So those are the types of questions we have to ask ourselves. But to start, let's get a better feel for these companies business models because they're not the exact same, but they're obviously quite similar. To start, jump over to the dividend breakdown sheet. Let's get a reference and look at Visa's dividend metrics. What we can see is these are lower yielding stocks. So, Visa's yield is about 0.83%, but they grow the dividend at an exceptional rate. The 10-year dividend cagger at 16.4 and the 5-year close to 15%. So, like we saw earlier in this video, dividends have grown substantially over the last decade. In the case of Visa, it's nearly 5xed. They've done all this with the free cash flow payout ratio remaining incredibly low, only sitting at 21.48%.

[00:05:22]And remember, anytime we have a very low free cash payout ratio with exceptional dividend growth, that's only possible in one way. If the company at the exact same time is growing free cash flow at an exceptional rate. And that's exactly what happens. Anytime a company's growing free cash flow at a rate faster than the dividend, naturally, that means the free cash flow payout ratio is going to decline. So, not only have they grown dividends at an exceptional rate, growing your yield on cost if you invested into the stock, but the dividend got even stronger. it got more sustainable and at the exact same time these are stocks that are actively buying back shares. In the case of Mastercard, they've gone from around 1.1 billion in shares outstanding to in 2025 below 900 million. So over a 10% reduction in shares outstanding during that time period, which naturally means on a per share basis, it contributed to around 10% dividend growth because the total amount they were paying out in dividends was staying the same. In fact, it was even increasing, but at the same time, shares outstanding was decreasing.

[00:06:20]This is what a lot of people seem to miss about share buybacks and the way it actually helps stocks pay out more in dividends. Now, of course, it also boosts all other per share metrics such as free cash flow per share, revenue per share, and earnings per share. So, the dividend metrics for these stocks are obviously beautiful. Not a high yield, but it's because the share price climbs so fast due to the quality of the business. But now, we need to talk about the capital light business model. If we jump over to the free cash flow analysis sheet, let's just take a look at Mastercard to start. What you'll notice is when we zoom in, one of the metrics I love to pay attention to is the free cash flow margin. It's essentially telling us for every $100 in revenue that the company generates, how much actually becomes free cash flow. For Mastercard, it's one of the highest margins in the S&P 500. It's sitting at 51.58%.

[00:07:06]So, you can see the free cash flow growth listed here. It was substantial over the last decade. Yes, a lot of that is due to organic topline growth, but also look at the way margins have expanded over the last decade. We've gone from a 38.28% free cash flow margin to nearly 52%. We're seeing improvements every year, every couple of years. It's incredibly impressive. So, what type of business model does Visa and Mastercard actually have that allows them to achieve this? What type of business model do they have that allows them to achieve such a high return on invested capital? essentially meaning when they invest capital into the business, they generate very high returns. And believe it or not, this is where a lot of people start to misunderstand the business.

[00:07:45]Anytime I talk about these companies, I like to show this graphic, but it's because still so many people misunderstand. At their core, these companies do not collect interest income. Their primary business segments are things like data processing, international transaction, domestic assessments, crossber volume fees, transaction processing. Interest income is not the driver of Visa or Mastercard.

[00:08:05]They're payment networks. They're not the banks issuing the credit. So, here's the example. A $100 purchase is made.

[00:08:11]The merchant would collect around $98.

[00:08:13]Where does that 2% actually go? Well, around 1.44% will go to the issuing bank, the bank that issued that credit card because they're taking on the risk.

[00:08:22]It's used by the consumer. Then we have about 0.42% which is the bank of the merchant, the acquirer bank. And then we have just 0.14% which goes to Visa and Mastercard, the payment network. This is why they have such a capital light business model. But I also want you to think about one of the advantages of this business model.

[00:08:41]What we're looking at here is monthly inflation rates. And what you can see the month of April saw the highest inflation rate we had seen in the last 3 years. We had finally gotten it down from the post-pandemic boom. And then because of the war, the conflict, inflation has surged due to higher oil prices. Here's what this actually means for Visa and Mastercard. Visa and Mastercard are the ultimate hedges against inflation. Because Mastercard and Visa earn fees based on transaction value, higher prices across the economy actually increase the topline revenue without requiring any more customers or more capital. So when prices rise, Mastercard and Visa take a percentage of the larger transaction base. It's a perfect inflation hedge. This business model is also why credit card interest rate caps, which some people in our government have recommended, are completely misunderstood, at least as it relates to Visa and Mastercard. Why is it misunderstood? Again, it's because Visa and Mastercard aren't the companies collecting interest income. That type of potential law would much more impact the actual banks, which I'm getting a bit ahead of myself because that starts to bring into question what are the three potential risks for Mastercard and Visa.

[00:09:49]And one of them is regulatory pressure.

[00:09:51]A little bit of that is misunderstood because they're not directly impacted by a potential cap on interest rates for credit cards. The banks would be more impacted. Now, the other risk has been the topic that some investors have been concerned about over the last 2 to 3 years, and that's stable coins. And the fear is relatively simple. For stocks like Visa, stocks like Mastercard, if people can move money instantly on blockchain rails using stable coins, then why would they need Visa or Mastercard? Will blockchain technology allow people to bypass those networks they provide entirely? But it misunderstands one of the biggest advantages Mastercard actually has. And it's not just processing transactions.

[00:10:25]The real advantage is the entire trust layer they've built around global payments. And this is one of their highest margin business segments. For example, take a look at one of Mastercard's old income statements. It's from a few years ago, but you can see crossborder volume fees was their fastest growing business segment. It continues to be that way today. What they're actually doing is helping with fraud detection, identity verification, compliance, merchant acceptance, dispute resolution, which is a huge one, chargebacks, tokenization, settlement, things like data analytics, and even in some cases risk management. Every single thing that I just mentioned still matters immensely in a stable coin world. And I think you could potentially make the argument that it matters even more. On top of this, this move to stable coins is something that Visa and Mastercard are more prepared and equipped to take on than any other business in the world potentially.

[00:11:13]They've already got the infrastructure in place. They've been preparing for this for years. In fact, Mastercard just recently bagged a bit license from New York State Department of Financial Services, which essentially will help foster a safe and responsible environment for the development of scaling digital assets, stable coins.

[00:11:30]So, I do think that fear is a little overblown. And then the last fear is agentic commerce. This one's actually really interesting. Agentic commerce is essentially AI agents making purchases or completing transactions on behalf of consumers or businesses. So, for example, if I told an AI assistant to book me a flight to New York, it would be able to do that. The question is, if AI agents are making purchases in the background, will the way those payments occur actually change? Agentic commerce could potentially increase the number of digital transactions substantially, which is already growing at a high rate.

[00:12:02]So increased payment volume is certainly good news, but at the same time secure transactions becomes even more important. The world needs secure payment infrastructure and Mastercard and Visa are years ahead when it comes to that. So I'd actually argue that agentic commerce is great news for these companies. It's going to increase the volume of transactions substantially, ultimately growing top lines and growing free cash flow. So that being said, I absolutely think these stocks are interesting trading at the valuation multiples they're currently at. Which one is the most interesting? Well, I'm so glad you asked. If we jump over to our stock comparison sheet, let's take a couple of things into consideration.

[00:12:39]Now, to start, we can see historically speaking, Mastercard has been growing revenue a little bit faster, and they've also grown free cash flow at a higher rate over the last 5 years. With that being said, the profit margins for Visa have been slightly stronger, whether you look at gross profit, operating margins, or even the net profit, which is incredibly strong for Visa at nearly 55%. Visa's free cash margin. We talked about this earlier, but it's at 52%.

[00:13:03]Now, we can see historically Mastercard has traded at a premium as a result of growing revenue and earnings at a faster rate. But that premium has declined. The stocks are trading at very close valuation multiples as we saw just a moment ago. Mastercard sitting at about 24.4. Meanwhile, Visa's at 23.5. The valuation multiple gap has closed substantially. But here's the huge caveat to this. Remember, valuation multiples don't really mean anything if we don't also account for future earnings growth. And what we can see is Mastercard's 3-year EPS kagger is projected to be at about 17% while Visa is at 13.7%.

[00:13:39]Both of those are very strong, but Mastercard clearly has the upper hand here. Now, does that justify the higher valuation multiple? Well, there's actually a really easy way to find out, and it's called the PEG ratio, the price toearnings growth ratio. It's a valuation model that's not used commonly, but it really does a great job of giving you a quick idea of whether or not a stock is trading at a fair value relative to its price to earnings multiple and while also accounting for its future earnings growth potential.

[00:14:06]So, all we're going to do is take the PE multiple and divide by earnings growth.

[00:14:10]And what we can see is Mastercard is trading at a PEG valuation of 1.43. The remember the lower this number is the better. Visa is sitting at 1.71. A lot of the time stocks that are trading at a closer to 2 PEG ratio the market starts to consider overvalued. As I get closer to one, they consider undervalued. So with that being said, as someone who has historically favored Visa because it was trading at a better valuation multiple now that the valuation gap has closed so much, I do start to think that Mastercard looks a bit more attractive.

[00:14:42]Even if we look at the average analyst price targets, Mastercard has about 31% upside with a price target of $640.

[00:14:49]That's the average analyst price target.

[00:14:51]Meanwhile, Visa is sitting at about 21.29% upside with a price target of $391 a share. So, they're both still incredible businesses. The just simple reality is when they were trading at a wide valuation gap, I do think Visa was probably a more interesting opportunity.

[00:15:06]But now, this valuation gap is closed so much to a degree that Mastercard's growing earnings at a rate so much faster than Visa, it's hard not to argue that Mastercard is more attractive. And I do have to agree with Wall Street analysts when it comes to Mastercard that there's quite a bit of upside at current prices. For example, if we just jump over to the valuation sheet and look at Mastercard, look at a discounted cash flow analysis. If we zoom in, all we're doing is projecting a growth rate to the future free cash flows of the business to see what the stock is actually worth. And assuming they grow free cash flow at a rate moving forward of maybe 13.5% annually, what we can see is we would come to a fair value of $636 a share, which ironically enough is incredibly close to the price target that analysts are giving us, giving it about 30 to 31% upside. So, from a historical perspective, from a price to earnings growth perspective, comparing it to their peer Visa perspective, and from a DCF model perspective, Mastercard is interesting at these prices. The market has some concerns. I'm not convinced these concerns are justified.

[00:16:07]The stock is currently trading right at its 52- week low and its lowest valuation multiple in the last 5 years.

[00:16:14]Don't be surprised if I add Mastercard to my portfolio in the coming weeks, despite the fact I already do own a decent position in Visa. So, with all that being said, go ahead and let me know what you think of these two companies in the comments down below if there's one you favor or one you plan on owning. But with all that being said, thank you guys so much for watching and please don't forget to like and subscribe to the