Macquarie Group Limited (ASX: MQG) will increase its dividend on December 14 to A $ 2.72. This brings the annual payout to 3.1% of the current share price, which is about the industry average.
Check out our latest analysis for the Macquarie Group
Macquarie Group Dividend Well Covered by Profits
Unless the payments are sustainable, the dividend yield doesn’t mean 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 profits are kept to grow the business.
Looking ahead, earnings per share are expected to drop 11.1% over the next year. If the dividend continues according to recent trends, we estimate that the payout ratio could be 67%, which we consider comfortable enough with most of the company’s profits remaining to grow the business in the future.
The company has a long history of dividends, but it doesn’t look good with the cuts of the past. The first annual payment in the past 10 years was A $ 1.97 in 2011, and the payment for the most recent year was A $ 6.07. This works out to a compound annual growth rate (CAGR) of around 12% per year over that time period. Despite the rapid growth of the dividend over the past few years, we have also seen payouts decline in the past, which makes us cautious.
The dividend seems likely to increase
With a relatively volatile dividend, it is even more important to assess whether earnings per share are increasing, which could indicate a growing dividend in the future. The Macquarie Group has impressed us by increasing EPS by 12% per year over the past five years. Shareholders get a large chunk of the profits which, combined with strong growth, makes it very attractive.
We really like the Macquarie Group dividend
Overall, we think it could be an attractive income stock, and it’s only getting better by paying a higher dividend this year. The company generates a lot of cash, and profits also cover distributions quite easily. If earnings decline over the next 12 months, the dividend could be shaken slightly, but we don’t think that should be too much of a problem in the long run. All of these factors taken into account, we believe this has strong potential as a dividend-paying stock.
It is important to note that companies with a consistent dividend policy will generate greater investor confidence than those with an erratic policy. Meanwhile, despite the importance of dividend payments, they aren’t the only factors our readers should be aware of when valuing a business. For example, we have selected 2 warning signs for the Macquarie group that investors should consider. Looking for more high yield dividend ideas? Try our organized list of big dividend payers.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.
Do you have any feedback on this item? Are you worried about the content? Get in touch with us directly. You can also send an email to the editorial team (at) simplywallst.com.