Stock Analysis

Macquarie Group (ASX:MQG) Is Increasing Its Dividend To AU$3.50

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ASX:MQG
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Macquarie Group Limited (ASX:MQG) has announced that it will be increasing its dividend on the 4th of July to AU$3.50. Based on the announced payment, the dividend yield for the company will be 3.4%, which is fairly typical for the industry.

View our latest analysis for Macquarie Group

Macquarie Group's Payment Has Solid Earnings Coverage

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Based on the last payment, Macquarie Group was quite comfortably earning enough to cover the dividend. This indicates that quite a large proportion of earnings is being invested back into the business.

Over the next year, EPS is forecast to fall by 12.4%. If the dividend continues along recent trends, we estimate the payout ratio could be 60%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

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ASX:MQG Historic Dividend May 9th 2022

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2012, the dividend has gone from AU$1.75 to AU$6.22. This works out to be a compound annual growth rate (CAGR) of approximately 14% 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

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that Macquarie Group has grown earnings per share at 13% per year over the past five years. The company is paying a reasonable amount of earnings to shareholders, and is growing earnings at a decent rate so we think it could be a decent dividend stock.

Macquarie Group Looks Like A Great Dividend Stock

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The company is generating plenty of cash, and the earnings also quite easily cover the distributions. If earnings do fall over the next 12 months, the dividend could be buffeted a little bit, but we don't think it should cause too much of a problem in the long term. Taking this all into consideration, this looks like it could be a good dividend opportunity.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 3 warning signs for Macquarie Group you should be aware of, and 1 of them makes us a bit uncomfortable. Is Macquarie Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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