Stock Analysis

Macquarie Group (ASX:MQG) Will Pay A Larger Dividend Than Last Year At AU$2.72

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ASX:MQG
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Macquarie Group Limited (ASX:MQG) will increase its dividend on the 14th of December to AU$2.72. This takes the annual payment to 3.1% of the current stock price, which is about average for the industry.

View our latest analysis for Macquarie Group

Macquarie Group's Dividend Is Well Covered By Earnings

Unless the payments are sustainable, the dividend yield doesn't mean too much. Prior to this announcement, Macquarie Group's dividend was comfortably covered by both cash flow and earnings. This means that a large portion of its earnings are being retained to grow the business.

Looking forward, earnings per share is forecast to fall by 11.1% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could be 67%, 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 November 1st 2021

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The first annual payment during the last 10 years was AU$1.97 in 2011, and the most recent fiscal year payment was AU$6.07. This works out to be a compound annual growth rate (CAGR) of approximately 12% 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

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Macquarie Group has impressed us by growing EPS at 12% per 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, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. 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. All of these factors considered, we think this has solid potential as a dividend stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 2 warning signs for Macquarie Group that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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