I would much rather buy shares of Macquarie Group Ltd (ASX: MQG) at this share price compared to Commonwealth Bank of Australia (ASX: CBA).
Over the past year we've seen the Macquarie share price rise by 3.8% and the Commonwealth Bank share price has risen by 9.3%. Obviously the better share to have owned over the past year would have been CBA, but I think for the medium-term I believe Macquarie will be the better choice for these reasons:
Geographic earnings diversification
Commonwealth Bank is a huge bank, but it is focused on Australia and New Zealand for its profit. Over the past two decades I'd say this has worked very well because of the strength of the Australian and New Zealand economies.
However, there is no guarantee at all that Australia will continue to be as strong as it has been. Macquarie earns around two thirds of its net income from international sources. Not only is that probably safer for shareholders to have a wider source of earnings, but it also means that Macquarie can invest to expand in any region it wishes.
Much less mortgage exposure
Mortgages may always be just a multi-year stream of earnings for the banks, which sound quite safe, but I think mortgages are a lot riskier at the moment.
CBA is seeing an increase of its borrower mortgage arrears. With such a large proportion of its earnings generated from mortgages, I'd say CBA's earnings are riskier these days than the past. Macquarie has a diverse and fairly even earnings base across areas like leasing, asset financing, market activities, asset management and so on.
Growing dividend
Although CBA's initial yield is higher than Macquarie's, the investment bank has proven that it can grow its dividend at a much faster pace than CBA over the long-term.
The latest Macquarie dividend payment was increased by the board by 12.5% to $3.60 per share.
Foolish takeaway
Macquarie is currently trading at under 15x FY20's estimated earnings with a partially franked dividend yield of 4.5%. Based on the reasons outlined above, I'd much rather buy shares of Macquarie over CBA – but I wouldn't want to buy shares of Macquarie today either. I think there are better opportunities out there.
