Why Macquarie's dividend doesn't catch my fancy

I am not excited about the passive income potential of this stock.

| More on:
A bored man sits at his desk, flat after seeing the latest news on the share market.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

I'd call Macquarie Group Ltd (ASX: MQG) one of the best ASX financial shares in Australia. However, I wouldn't describe the Macquarie dividend as a leading option for passive income.

There's a lot to like about the company, with its diversified earnings across different financial activities, including asset management, retail banking and investment banking.

Another appealing factor is that around two-thirds of its earnings come from overseas, unlike the domestic-focused ASX bank shares that earn nearly all of their profit in Australia and New Zealand.

Macquarie has demonstrated its ability to deliver long-term growth. But, its dividend appeal is a different issue, in my view. Let's dig in.

Lower dividend yield

Macquarie is one of the largest financial institutions on the ASX, but its dividend yields aren't correspondingly high.

A dividend yield comprises two factors – the dividend payout ratio and the price/earnings (P/E) ratio. In other words, how much of the annual profit is paid to shareholders and what earnings multiple is the business trading at?

Sometimes, Macquarie picks a lower dividend payout ratio than peers like Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), ANZ Group Holdings Ltd (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB).

In FY24, Macquarie's board of directors decided on a dividend payout ratio of 70%. According to the forecasts on Commsec, Macquarie is projected to pay a dividend per share of $7 in FY25, representing a dividend payout ratio of approximately 66% of net profit after tax (NPAT).

At the current Macquarie share price, that represents a (partially franked) dividend yield of 3.4%. That's not bad, but we can get a better savings rate from one of Macquarie's savings accounts.

Plenty of ASX dividend shares can offer a stronger dividend yield. However, there's one reason why the Macquarie dividend can become more appealing.

Growth

Macquarie has done a great job at directing its capital towards long-term growth opportunities. The company has grown its earnings significantly over the past 10 or 15 years.

A growing profit can help fund higher dividend payments, too.

Macquarie is projected to increase its payout by 8.6% to $7.60 per share in FY26, translating into a (partially franked) dividend yield of 3.7%.

The broker UBS' forecasts suggest the Macquarie dividend yield could reach more than 5% by FY29.

New capital notes?

Macquarie announced on Friday morning that it is considering the potential launch of a new capital notes offer.

It's being considered as part of Macquarie's regular capital and funding strategy. Macquarie will appoint Macquarie Capital as sole arranger and joint lead manager, as well as a number of other joint lead managers and syndicate brokers. There is no guarantee this offer will proceed, though.

Macquarie share price snapshot

Since the start of 2024, Macquarie shares have lifted 11%, as shown in the chart below.

Created with Highcharts 11.4.3Macquarie Group PriceZoom1M3M6MYTD1Y5Y10YALL31 Dec 20232 Aug 2024Zoom ▾Jan '24Feb '24Mar '24Apr '24May '24Jun '24Jul '24Aug '24Jan '24Jan '24Mar '24Mar '24May '24May '24Jul '24Jul '24www.fool.com.au

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Macquarie Group. The Motley Fool Australia has positions in and has recommended Macquarie Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Bank Shares

Young investor sits at desk looking happy after discovering Westpac's dividend reinvestment plan
Bank Shares

Invested $10,000 in Westpac shares 2 years ago? Guess how much you've already banked!

Atop their regular dividend payments, Westpac shares have enjoyed a strong two-year run.

Read more »

Woman calculating dividends on calculator and working on a laptop.
Bank Shares

Buying CBA stock today? Here's the dividend yield you'll get

CBA's yield right now might surprise you.

Read more »

A financial expert or broker looks worried as he checks out a graph showing market volatility.
Bank Shares

How much would the ASX 200 fall if CBA shares returned to 'fair value'?

CBA shares account for 12% of the ASX 200.

Read more »

A woman sits in a cafe wearing a polka dotted shirt and holding a latte in one hand while reading something on a laptop that is sitting on the table in front of her
Dividend Investing

How are these passive income investors earning a 7.5% dividend yield on their surging CBA shares?

CBA shares are proving more lucrative for some passive income investors than others.

Read more »

A woman in a bright yellow jumper looks happily at her yellow piggy bank.
Bank Shares

$10,000 invested in CBA shares in FY25 is now

Let's see whether it was a successful 12 months for bank investors in the last financial year.

Read more »

Woman with spyglass looking toward ocean at sunset.
Bank Shares

What could happen to the big 4 banks in FY26?

What’s in store for the big four banks over the next 12 months?

Read more »

Bank building in a financial district.
Bank Shares

Which is the only ASX 200 bank stock Macquarie expects to outperform in FY 2026?

Macquarie forecasts a tough year ahead for the ASX 200 banks, with only one expected to outperform.

Read more »

a couple and their baby sit together at their computer carrying out digital transactions and smiling happily.
Bank Shares

Is the NAB share price a buy for passive income?

Should investors buy into this major bank for income?

Read more »