It's been an encouraging year-to-date for investors in Macquarie Group Ltd (ASX: MQG), with the bank seeing its share price rise by 6% since the start of the year. That's a better performance than the ASX, which is up less than 3% over the same time period.
However, further gains look to be very much on the cards for Macquarie and a recent update shows that the bank could be turning a corner. Here's why investors could be rewarded for keeping faith in the bank:
- Macquarie Group recently reiterated that the current year would show an improvement on last year, with the bank's bottom line continuing to benefit from a strategy shift. Indeed, it has moved away from capital markets and has sought to diversify its income stream. This has been a prudent step taken by Macquarie and it ensures that the bank is better insulated from a market downturn than it was prior to the GFC. Furthermore, it means that while earnings may grow at a more modest pace moving forward, they could prove to be more resilient and offer greater reliability to investors. With the future remaining highly uncertain, this could prove to be a major asset for investors over the medium to long term.
- Although the bank's new strategy is more conservative than it was previously, Macquarie Group is still forecast to deliver strong earnings growth over the next couple of years. For example, EPS is expected to be 9.7% higher in the current year than it was last year, while next year's figure is set to show a further improvement of 6.3%. This shows that the bank's new focus is delivering real bottom line growth, which is clearly a major plus for investors.
- While dividends per share are expected to fall significantly in the current year as Macquarie seeks to put its payout ratio on a more sustainable footing, shares still have a forward yield of 5% (40% franked). This is above the ASX's yield of 4.5% and Macquarie is expected to increase dividends per share next year by 8.3% (aided by the previously mentioned improved profitability). This means that shares in the bank could be yielding a cool 5.4% in a couple of years' time (assuming the share price stays constant). This would be highly appealing to income-seeking investors.
