Shares in diversified financial company Macquarie Group Ltd (ASX: MQG) have soared by over 40% since the turn of the year, while the ASX is down 1% year-to-date. As such, many investors may be of the view that the stock is due a pullback – especially since it has now risen by 134% during the last five years.
However, Macquarie Group continues to have huge appeal for long term investors as it seeks to grow its bottom line through the economic cycle. Notably, Macquarie is using its relatively strong financial position to good effect, with the company taking advantage of appealing asset prices to expand and diversify its asset base. For example, it has purchased an aircraft leasing operation in recent months and has also paid $8.2bn for ANZ's Esanda Dealer Finance unit, which increases its total exposure to this area to around $17bn.
In addition, Macquarie appears to be better positioned than many of its financial rivals to both deal with a recession and also to take advantage of growth opportunities outside of Australia. This global footprint and wide spread of assets should prove useful in terms of delivering sustainable, resilient and strong profit growth in future years.
As well as a sound strategy, Macquarie remains an appealing income play. Its yield may be below the ASX's at 4.2% versus 4.6% for the wider index. However, with dividends per share forecast to rise at an annualised rate of 10% during the next two years, Macquarie could yield as much as 4.8% in financial year 2017.
Furthermore, Macquarie has an excellent track record of dividend growth, with shareholder payouts having soared by 12.5% per annum during the last five years. This should provide the company's investors with a degree of confidence regarding the company's attitude to rewarding its shareholders in future years, as should the fact that Macquarie's dividends are well covered by profit at 1.55 times.
Meanwhile, Macquarie also offers high growth prospects at a very reasonable price. For example, over the next two years it is forecast to post an increase in its bottom line of 12.2% per annum. Despite this relatively high rate of growth it trades on a price to earnings (P/E) ratio of 15.6, which is a small discount to the ASX's P/E ratio of 15.9, and works out as a price to earnings growth (PEG) ratio of 1.28 versus 1.39 for the wider index.
Of course, Macquarie has a relatively high price to book value (P/B) ratio of 2, while the ASX has a P/B ratio of only 1.26. However, with such a high quality, well-diversified asset base which offers exceptional stability and long term growth potential, it appears to be worth a premium to the ASX on this measure. As such, Macquarie seems capable of continuing to outperform the wider index over the medium to long term thanks to its sound strategy, desirable income potential and relatively high growth prospects being offered at a reasonable price.
