Why Macquarie is up 66.6% this year

Increases to net profit and return on equity, plus a higher dividend, are all welcome news for shareholders.

| More on:
a woman

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

It has been a good year for Macquarie Group (ASX: MQG) shareholders. The company released its full year results earlier this month showing a 17% increase in net profit after tax. The increased earnings helped the board to declare $2 per share in dividends for the 2013 financial year, up from $1.40 in 2012, placing the company on a dividend yield of 4.6%. It is the highest dividend paid since 2008 and shows the company is slowly clawing its way back from those heady pre-GFC days.

The key metric that has led to the impressive 66.6% share price appreciation this year is (hopefully) the bottoming of return on equity (ROE). Pre-GFC, ROE was as high as 29.8%. In 2012 it hit a low of 6.8%. The 2013 financial year has seen ROE increase to 7.8%. While this is still low, it is potentially the turning point. Investors who picked this turnaround have been well rewarded!

Management certainly has more to do, as ROE is still a long way below Macquarie’s cost of capital. Some, perhaps most, of this is already baked into the current share price but it does create some momentum for the stock price should ROE continue to increase.

Talking of ROE, one disappointment over recent years for shareholders has been the board’s decision to override the long-standing employee profit-share arrangement and pay bonuses even though the hurdle for ROE hasn’t been met. Macquarie is known as the ‘millionaires’ factory’ for the generous bonuses it pays. Previously, shareholders believed the bonus/incentive program protected them in lean times by not rewarding lacklustre performance. It now seems whether good or bad performance, bonuses get paid.

As the chart below shows, Macquarie has not only outperformed the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) by over 40% since June 2012 but it has also outperformed peers in the banking sector, including ANZ (ASX: ANZ), which has had the lowest share price growth of the majors, and also Westpac Banking (ASX: WBC) which, in share price appreciation, is the best performing. Macquarie has also significantly outperformed its peers in the wealth management sector, including IOOF Holdings (ASX: IFL) and Clearview Wealth (ASX: CVW).

tmchart

Source: Google Finance

Foolish takeaway

It is still a tough market that Macquarie is operating in. In banking and financial services, it is gaining ground through initiatives such as expanding into the home-loan market. The funds management division is a very solid business with $347 billion of assets under management. The two divisions investors are watching for a pick-up are the corporate & asset finance and Macquarie Securities. These two divisions would get a boost should merger and acquisition deals increase, coupled with higher stock market activity.

In the market for high yielding ASX shares? Get “3 Stocks for the Great Dividend Boom” in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!

More reading

Motley Fool contributor Tim McArthur owns shares in Macquarie Bank.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

asx share price competitions represented by businessmen arm wrestling
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

person reading news on mobile phone
⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »