Macquarie Group Ltd (ASX: MQG) is often called the ASX's fifth bank. This is a slightly misleading label, since Macquarie's business model is very different to the other ASX banks like Commonwealth Bank of Australia (ASX: CBA) or Westpac Banking Corp (ASX: WBC).
Sure, Macquarie does offer mortgages, credit cards, loans, savings accounts and term deposits like the other ASX banks. But they make up a small corner of Macquarie's overall earnings pie. Far more significant is Macquarie's investment banking business, as well as its hefty funds' management arm.
But the ASX banks are also well-known for their dividend payments. Until the coronavirus pandemic, it was normal (even expected) that the banks would offer trailing, fully franked dividend yields of between 5-8%.
Of course, the pandemic threw a spanner in those works. All of the ASX banks were forced to deliver deep cuts to their dividends last year. Westpac didn't even pay an interim dividend in 2020 for the first time in decades.
Macquarie did manage to pay 2 dividends in 2020 though, one in July and one in December. But they were indeed far lower than the dividends paid in 2019. The final dividend of $1.80 per share that was paid out in July was significantly below the previous final dividend of $3.60 per share that we saw in 2019. Exactly half, in fact. And the interim dividend that investors saw back in December came in at $1.35, which was also well below the $2.50 per share we saw in December 2019.
So what does the future hold for Macquarie dividends?
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What does Macquarie's dividend future look like?
Well, the company's official dividend policy is the following:
"Macquarie Group Limited targets an annual ordinary dividend payout ratio in the range of 60 per cent to 80 per cent of net earnings".
Well, Macquarie's last financial report was its 1H21 interim report that we saw back in November. In this report, the company announced that its basic earnings per share for the six months to 30 September 2020 came in at $2.77. That was down significantly on the $4.30 that Macquarie reported for 1H19, hence the dividend cut.
So for Macquarie's dividend to return to the levels it was at pre-pandemic, it would need to see a big boost to net earnings. This looks to be in motion but at a slow pace. Back in February, Macquarie released some updated guidance. This guidance stated that "Macquarie now expects the Group's result for the year ended 31 March 2021 (FY21) to be up approximately 5% to 10% on FY20". So investors might be looking at a ~5-10% boost for their Macquarie dividends in 2021. Nothing to write home about, but certainly better than nothing at all.
On the current Macquarie share price of $161.06, the company offers a trailing dividend yield of 1.96%.
