Over the past three years, shares in Macquarie Group Ltd (ASX: MQG) have returned in excess of 150% to shareholders, when dividends are included.
For a large-cap stock, in such a short period of time, the level of return is spectacular. It compares to a 37% return from the S&P/ASX 200 Index (ASX: XJO) (^AXJO).
So with shares now trading near their five-year high, is it too late to be buying in or are more gains likely in the near future? Here are three reasons why Macquarie Group shares could be primed for further outperformance.
1. 68% of Macquarie's income is derived from markets outside Australia and New Zealand. With growing exposure to both Asia and North America, there is potential for Macquarie to increase foreign earnings whilst at the same time benefitting from a depreciating Australian dollar.
2. In the world economy stock markets are hitting all-time highs whilst interest rates remain near zero. This is fuelling demand for high-quality investment advice and services of banks which specialise in corporate finance, M&A and other niche finance areas. Macquarie will be a direct beneficiary of this.
3. Macquarie pays a great dividend. Currently forecast at $2.97 per share over the coming year, the payout means the bank trades on a dividend yield of around 5.1% with partial franking. With the possibility of interest rates going lower than 2.5% here in Australia, investors will be looking to add reliable dividend stocks to their portfolio.
Buy, Hold or Sell?
Macquarie's earnings are largely dependent upon rising confidence in global markets and its ability to grow funds under management. In the short term, I wouldn't be surprised if Macquarie's share price trends higher, however, for long-term investors such as myself, the idea of buying a cyclical stock such as Macquarie in the midst of a bull market is hard to stomach. As such I'm waiting on the sidelines, for now.