Macquarie Group Limited (ASX:MQG) will increase its dividend from last year's comparable payment on the 4th of July to A$4.50. The payment will take the dividend yield to 4.2%, which is in line with the average for the industry.
Macquarie Group's Dividend Forecasted To Be Well Covered By Earnings
We aren't too impressed by dividend yields unless they can be sustained over time.
Having distributed dividends for at least 10 years, Macquarie Group has a long history of paying out a part of its earnings to shareholders. Taking data from its last earnings report, calculating for the company's payout ratio shows 55%, which means that Macquarie Group would be able to pay its last dividend without pressure on the balance sheet.
Over the next 3 years, EPS is forecast to fall by 2.0%. Despite that, analysts estimate the future payout ratio could be 60% over the same time period, which is in a pretty comfortable range.
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The annual payment during the last 10 years was A$1.59 in 2013, and the most recent fiscal year payment was A$7.50. This means that it has been growing its distributions at 17% per annum over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.
The Dividend Looks Likely To Grow
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Macquarie Group has seen EPS rising for the last five years, at 12% per annum. Earnings are on the uptrend, and it is only paying a small portion of those earnings to shareholders.
We Really Like Macquarie Group's Dividend
In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The distributions are easily covered by earnings, and there is plenty of cash being generated as well. We should point out that the earnings are expected to fall over the next 12 months, which won't be a problem if this doesn't become a trend, but could cause some turbulence in the next year. All of these factors considered, we think this has solid potential as a dividend stock.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 2 warning signs for Macquarie Group (of which 1 is a bit unpleasant!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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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.
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