There are two key reasons why Macquarie Group Ltd (ASX: MQG) is my favourite ASX bank share.
What is Macquarie?
Macquarie is one of the largest financial businesses on the ASX. It does have a traditional banking service like deposits and loans. But it also offers investment bank services with its Macquarie Asset Management, commodities and global markets (CGM) and Macquarie Capital divisions.
That’s what it does. But there are a couple of key reasons why I prefer to Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group Ltd (ASX: ANZ), National Australia Bank Ltd (ASX: NAB) and Commonwealth Bank of Australia (ASX: CBA).
Quality and diversification of earnings
As I’ve already mentioned, Macquarie has four different divisions that generate profit for the ASX investment bank. I think that’s much better than just being essentially reliant on loans to generate profit like the big four banks are.
Macquarie Asset Management in-particular is a quality segment. At the end of the first quarter, it had A$693.2 billion of assets under management at 30 June 2021. This was helped by the acquisition of Waddell & Reed. This division generates quality, consistent revenue and profit for the business.
Another thing to note is that around two thirds of the profit is generated from international sources. I think that’s better than the big four ASX bank’s reliance on Australia and New Zealand earnings. It also gives Macquarie the ability to invest around the world.
Growth
Macquarie has proven its ability to grow its earnings over the last decade. Its growing investment in green projects is an attractive feature.
In a recent trading update, Macquarie said that improved trading conditions in the first quarter of FY22 meant operating profit was “significantly up” on the prior corresponding period, which had mixed trading conditions.
Macquarie also said that in order to allow additional flexibility to support business growth, the board has decided to update the dividend payout policy range to between 50% to 70%. In FY21, Macquarie’s dividend payout ratio policy range was 60% to 80%.
That’s a good sign that the business thinks there are investment opportunities worth using some capital for. Investing for growth is probably going to create more shareholder returns over time. But paying out half of the profit is still a good dividend yield.
As far as blue chips go, Macquarie is probably one of my preferred ASX dividend shares.
