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Macquarie Group Ltd, Rio Tinto Limited and Westpac Banking Corp: Should you buy?

Macquarie Group Ltd (ASX: MQG), Rio Tinto Limited (ASX: RIO) and Westpac Banking Corp (ASX: WBC) are dominant Australian businesses with generous dividend payments. They make up over 11% of the S&P/ASX 200 Index (ASX: XJO) (INDEX: ^AXJO) and have over 5.2 billion shares on offer. It’s no wonder why so many Australians make room for these three giants in their long-term portfolios.

However, after a turbulent start to 2014, are they now worthy of your investment dollars? Here’s what you can expect from these three giants.

Macquarie Group

Thanks to rising confidence in global markets and recovering major economies, Macquarie was able to capitalise on its global presence and grow profits by 49% in FY14. What’s more, shareholders got a healthy dividend and special distribution from the sale of the investment bank’s stake in Sydney Airport Holdings Ltd (ASX: SYD). In the next 12 months it can be expected to pay a dividend equivalent to 4.9% of the current market price, with partial franking. In the long-term Macquarie will focus on growing earnings from Asian and North American markets by providing specialist financial services in areas such as M&A, banking, commodities research and funds management. It will also look to increase exposure to the Australian mortgage market. At current prices it could be a good long-term buy and hold.

Rio Tinto

Our biggest iron ore miner has had its back up against the wall in recent times as the spot price of the steelmaking ingredient plummeted. It’ll be interesting to see how the price fall from over $US135 per tonne at the beginning of 2014, to below $US95 per tonne will affect Rio’s top line in its upcoming half-yearly report. Whilst there is a chance its Aluminium and Copper businesses could surprise the market with higher earnings, I’m adopting a wait-and-see approach for now.

Westpac Banking Corp

As Australia’s second-largest bank, Westpac has delivered market-beating returns for many years throughout the past two decades. However, right now, it boasts an exceptionally high share price and I think lacks potential to beat the market. In the past 18 months, the only reason it continued to post increased cash earnings was because costs fell quicker than interest income did. I’m not alone in my bearish stance, Credit Suisse analysts believe Westpac, along with the other big banks, will really struggle to grow double-digit earnings per share from here on.

A BETTER buy than these 3

Whilst I think there is potential for each of these businesses to bring truly stellar results to shareholders, I’m not 100% convinced they’ll all outperform the market. However, there are some ASX stocks which I think are likely to do so.

Every year, Motley Fool investment advisor Scott Phillips hand-picks 1 ASX dividend stock with outstanding potential. Just click here to download your free copy of "The Motley Fool's Top Dividend Stock for 2014-2015" today.

Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies. 

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