Stock Analysis

Macquarie Group (ASX:MQG) Has Announced That It Will Be Increasing Its Dividend To A$3.00

ASX:MQG
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The board of Macquarie Group Limited (ASX:MQG) has announced that the dividend on 13th of December will be increased to A$3.00, which will be 10% higher than last year's payment of A$2.72 which covered the same period. Based on this payment, the dividend yield for the company will be 3.7%, which is fairly typical for the industry.

Our analysis indicates that MQG is potentially undervalued!

Macquarie Group's Dividend Forecasted To Be Well Covered By Earnings

Solid dividend yields are great, but they only really help us if the payment is sustainable.

Macquarie Group has a long history of paying out dividends, with its current track record at a minimum of 10 years. Past distributions do not necessarily guarantee future ones, but Macquarie Group's payout ratio of 50% is a good sign as this means that earnings decently cover dividends.

Looking forward, earnings per share is forecast to fall by 4.4% over the next 3 years. However, as estimated by analysts, the future payout ratio could be 63% over the same time period, which we think the company can easily maintain.

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ASX:MQG Historic Dividend October 31st 2022

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2012, the annual payment back then was A$1.48, compared to the most recent full-year payment of A$6.22. This works out to be a compound annual growth rate (CAGR) of approximately 15% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. It's encouraging to see that Macquarie Group has been growing its earnings per share at 13% a year over the past five years. Shareholders are getting plenty of the earnings returned to them, which combined with strong growth makes this quite appealing.

We Really Like Macquarie Group's Dividend

Overall, a dividend increase is always good, and we think that Macquarie Group is a strong income stock thanks to its track record and growing earnings. The company is generating plenty of cash, and the earnings also quite easily cover the distributions. However, it is worth noting that the earnings are expected to fall over the next year, which may not change the long term outlook, but could affect the dividend payment in the next 12 months. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 2 warning signs for Macquarie Group that you should be aware of before investing. Is Macquarie Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Valuation is complex, but we're helping make it simple.

Find out whether Macquarie Group is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.