When it comes to Macquarie Group Ltd (ASX: MQG) shares, most investors would be familiar with the name 'Macquarie', but some might struggle to describe what it is that the group actually does. Macquarie's business structure is quite complex, so there's a lot to get one's head around.
This complexity is in contrast to Australia's big four local retail banks – Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB), Australia and New Zealand Banking Group (ASX: ANZ) – which are generally better understood.
So, what does Macquarie do?
To put it simply, Macquarie is a global financial services business with a core focus on international investment banking. It has been a true Australian success story, with a strong track record of profitability over the last few decades.
Macquarie is seen as one of the top global asset managers, investing in some of the best companies and infrastructure assets around the world and is driven by a solid management team.
Opening its first office locally in 1969, Macquarie now has operations in more than 25 countries.
The company has 4 core business segments – of these, the asset management business segment is particularly profitable, delivering stable earnings via its fees and a focus on annuity-style investments.
Growing diversification is key to success
Over the past few years, Macquarie has become a more balanced and diversified business rather than one heavily focused on a small core group of operations, which was one of the reasons its share price was hit so hard during the GFC.
A growing number of overseas operations are a key part of this diversification story. Macquarie now generates around two-thirds of its income from its international operations, providing more geographic diversification than Australia's big four local banks.
Strong revenue growth continues
Macquarie continues to grow its revenue and net profit while its cost-to-income ratio has been steadily declining over recent years.
A key differentiator that Macquarie has over the big four banks is its highly specialised services. In comparison, the home loan products offered by the big four are becoming more commodity-like in nature, due to the ease of comparing loans online via tools such as product comparison websites.
Macquarie has also outperformed the big four over the last 10 years with regards to annual profitability growth, which has flowed through to increasing dividends. In fact, Macquarie has been growing its dividends every year for the past 20 years. Its dividend yield is currently 4.37%, partially franked.
In addition, Macquarie pays out significantly less of its current earnings than the big four banks, leaving more opportunities for dividend rises in the future.
Foolish takeaway
I think Macquarie a great choice for both growth and income, and is well placed to outperform the ASX 200 over the next 5 to 10 years.
It appears set to continue to generate strong returns from its asset management segment with the growing demand for new infrastructure builds in Australia, North America, Asia and Europe.
However, as is the case for all banks, Macquarie's future growth will continue to be strongly correlated with the prevailing economic conditions in the countries that it operates within.
