One of the best ways to get ahead in investing is to concentrate on stable, well-performing companies.
Warren Buffett, the billionaire investor, always tells investors that when considering buying a stock, they should imagine that they are going to buy the whole company (like a billionaire such as Buffett possibly could).
Then, he asks investors to take one step further.
Now imagine that the stock market will close for 10 years after you buy the company. Would you be happy with the returns the company could give you as an owner over that time? Is the stock still looking attractive?
For example, the investment bank Macquarie Group Ltd (ASX: MQG) just hit a new multi-year high of $61.85, a price not seen since May 2008. It has more than doubled in share price in the last two years, but that's no reason to think it is done and it's time to cash in all your chips. There is more growth in the near future.
Here's why it is a standout company and a good stock to keep on holding for the long term.
1) Dividend
The stock pays a healthy 4.6% yield partially franked. Dividend payments have risen over the past several years, with FY 2014 having a big increase following a bumper year of earnings.
First half FY 2015 earnings per share were $2.30, up 42% on the prior first half, which lifted the interim dividend 30% to $1.30 per share. That is great growth for dividend investors. The company regularly pays out 60% – 80% of annual earnings.
2) Financial Strength
Net interest and trading income for the interim gained 13%. In March, the bank said it expected FY 2015 to be in line with FY 2014, yet with international markets improving and the bank's assets under management stable at $425 billion, FY 2015 could beat expectations. 65% of its revenue comes from overseas, so as the Aussie dollar weakens against major currencies such as the US dollar and Euro, this can give a boost to earnings as well.
3) Growth Outlook
As an investment bank, its business is more attuned to capital markets and corporate activities, which are rising these days. Although the S&P/ASX 200 Index (ASX: XJO) (Index: ^AXJO) has been relatively flat for the past year, major overseas indices like the US S&P 500 (Index: ^GSPC) continue to set new all-time highs. This helps maintain strong revenue and earnings growth for Macquarie Group. The stock may be at new highs now, but earnings should grow over the short term. The future is looking better, so I think investors should stay with their positions.
