To invest well requires patience.
Indeed, although technology has propelled day traders' ability to peel off tidy profits from tiny share price movements, the benefits of investing long-term have been proven time and again.
But, unlike day-trading, it requires patience.
Markets ebb and flow over years — not seconds, minutes, hours or days.
Shares of some companies – like markets in general – also ebb and flow over the cycle.
These "cyclical" companies usually have profits which are heavily leveraged to macroeconomic conditions (e.g. falling interest rates, currencies, commodity prices, housing or stock markets).
Macquarie Group Ltd (ASX: MQG) is one such example.
As Australia's largest investment bank it makes money by executing corporate deals, advising clients, managing large funds and writing loans.
Obviously, when stock markets are hot and investors are demanding more loans during a low interest rate environment profits will soar.
On the back of strong currency tailwinds and bounding international sharemarkets, Macquarie recently posted a 27% rise in full year profit.
It also announced an impressive dividend increase.
Based on last year's full-year payout of $3.30, Macquarie shares currently yield 4.1% partially franked.
However, as can be seen from Macquarie's dividends over time, it's payouts are anything but linear. The average payout over three years (represented by the orange line, above) shows the cyclical nature of its distributions.
Therefore, unless you're investing for the ultra-long-term (10 years or more), the challenge for savvy investors is to purchase Macquarie Group shares when the bank is at, or below, the trend of its average earnings over a cycle.
Obviously, as the company grows over time, identifying the average level of earnings (i.e. profits) isn't easy.
However with Macquarie shares currently at multi-year highs and global share markets hitting all-time highs, it wouldn't require too much research to suggest that we're likely above trend in earnings.
Whilst Macquarie could continue to post large profit rises in the near term, for investors seeking a reliably growing dividend stream over the medium-term (five years); the time to buy Macquarie Group shares appears to have passed.
Personally, as an investment for growth, I would like to own Macquarie shares because they've proven to be a great investment from time to time.
However, if I were looking to secure a reliable dividend, there's two other stocks I'd consider buying first.
- APA Group (ASX: APA) is Australia's largest owner of Liquefied Natural Gas infrastructure pipelines and assets. In addition to its huge amount of current and recurring take-or-pay contracts with gas producers and retailers, it stands at the beginning of Australia's next gold rush: rising LNG exports. Its shares currently trade on a trailing 4.1% dividend yield.
- Transurban Group (ASX: TCL) is Australia's largest owner and operator of toll roads. Assets include Hills M2, Lane Cove Tunnel, CityLink and a part-ownership of the Brisbane Motorways portfolio. It's currently offering a 3.7% dividend yield.
Should you buy, hold, or sell Transurban Group and APA shares?
Whilst Macquarie Group is undoubtedly a great growth stock, Transurban and APA have strong competitive advantages over rivals, given the enormous upfront costs for establishing infrastructure assets such as toll roads and nationwide gas networks. They are thus more reliable investments for income, in my opinion.
However, shares in both APA and Transurban have run very hard over the past year, and as a result they aren't exactly bargain investments at today's prices.
