Here's my favourite ASX 200 bank stock for October

I like this stock for a couple of key reasons.

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There are plenty of S&P/ASX 200 Index (ASX: XJO) bank stocks to choose from in October that look promising for the long term.

I'm sure readers have heard of Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), ANZ Group Holdings Ltd (ASX: ANZ), and National Australia Bank Ltd (ASX: NAB). There are also smaller banks on the ASX including Bank of Queensland Ltd (ASX: BOQ), Bendigo and Adelaide Bank Ltd (ASX: BEN), and Suncorp Group Ltd (ASX: SUN).

But for me, my preferred ASX 200 bank pick is Macquarie Group Ltd (ASX: MQG).

Lower valuation

Since 20 July 2023, the Macquarie share price is down by more than 10% and it has fallen 20% from April 2022.

I think a business like Macquarie is more attractive when its share price drops because I believe in the business's long-term outlook.

The Macquarie share price may be a bit more volatile than others because it has more exposure to the global market, which tends to see plenty of ups and downs.

The economy tends to go through cycles and it's understandable that Macquarie's earnings can be a bit volatile as well, though the ASX 200 bank stock has been working on growing its 'annuity-like' (meaning consistent) earnings from some segments of its business.

A lower Macquarie share price suggests the company's price/earnings (P/E) ratio has improved. According to Commsec, the business is projected to generate earnings per share (EPS) of $10.60, which would put the ASX 200 bank stock at under 16 times FY24's estimated earnings.


One of the most attractive things about Macquarie is the diversification of its earnings. It has been growing its banking division strongly, its asset management division has been increasing in scale over time, and the commodities and global markets (CGM) and investment banking operations are bigger than they used to be.

Interestingly, it makes more than two-thirds of its earnings outside the local Australia-New Zealand market.

Being able to invest via a number of different divisions across the world means Macquarie can cherry-pick the best opportunities and achieve the highest possible return on equity (ROE).

When I think about the other ASX 200 bank stocks, they're highly reliant on making profit from lending to Australian households and businesses.

Dividend growth

I would rather a business have a lower dividend payout ratio and a lower dividend yield so that they're re-investing a higher level of profit for long-term growth. Of course, earnings growth can lead to dividend growth.

The business paid a final dividend per share of A$4.50, which was growth of almost 30% year over year.

Using the trailing dividends, the partially franked dividend yield is 4.5%. In ten years, I think Macquarie could be paying the largest dividend yield on current share prices compared to other ASX 200 bank stocks.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Macquarie Group. The Motley Fool Australia has positions in and has recommended Bendigo And Adelaide Bank and Macquarie Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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