Macquarie and Commonwealth Bank - Dividend Story

There are many new investors who do not understand the concept of dividend receipts for their investments in a mutual fund or an individual stock. Generally, a dividend is a payout of a portion of company’s net income to eligible shareholders, typically issued by a publicly traded company.

The company has an option to re-invest in the surplus that it made in the year known as retained earnings or they give a part of the profits to its shareholders. The decision of how much dividend a company is going to pay is undertaken by the board of directors of the company.

Generally, companies with large market cap are seen to be some of the best dividend players with more predictable profits. These companies seek to maximise shareholders wealth apart from normal growth.

High growth companies and start-ups do no usually pay dividends, because of their future growth opportunities and low disposable profits.

These large market cap companies are also known as “Blue-Chip” companies - a term created from a renowned game poker, where blue chip retains the highest value. These stocks are considered best high valued and long-term investment vehicles.

Blue-chip stocks are believed safe havens due to their steady behaviour witnessed through an economic downturn. As these stocks are less volatile, they offer regular dividends to their shareholders. Blue-chip stocks provide uninterrupted and increased dividends over time.

Let us look at dividend story of two such blue-chip stocks:

S&P Upgrades Ratings of Macquarie Group (ASX: MQG)

Macquarie Group has announced that S&P Global Ratings (S&P) had upgraded the long-term issuer credit ratings for Macquarie Bank Limited (MBL), Macquarie Group Limited and other Macquarie entities. As per S&P Global, the bank’s and group’s risk management abilities have improved over time

The Group primarily acts as an investment intermediary for institutional, corporate, government and retail clients and counterparties around the world, generating income by providing a diversified range of products and services to its clients. Dividend History of MQG

In 1H20, MQG has reported net profit of $1,457 million, up by 11% YoY and down by 13% on 2H19. This was influenced by the benefits of the business and geographic diversity of the company, with enhanced client activity across many business lines and encouraging market conditions across the commodities and global markets platforms.

The company declared ordinary interim dividend of $2.50 cents per share (40% franked) in 1H20, which is higher than the interim ordinary dividend of $2.15 cents per share (45% franked) declared in 1H19. The company reported annualised ROE of 16.4%, which is in line with 1H19 and down from 19.5% in 2H19.

Full year dividend ($ per share) (Source: Company’s Report)

Outlook for FY20

The company expects that the result for FY20 will be slightly lower than the results of FY19. Its short-term outlook is dependent on range of factors like the completion rate of transactions and period-end reviews, market conditions, the impact of foreign exchange etc. But the company remains well positioned to report superior performance in medium term because of its thorough expertise in major markets, strength in business and geographic diversity.

Stock Performance

The stock of MQG traded at $139.970 per share, up 1.6% on 19^th December 2019 (3:43 PM AEDT). The company has a market capitalisation of $48.82 billion with an annual dividend yield of 4.43%.

The stock has given a total return of 7.01% and 11.73% in the time period of 3 months and 6 months, respectively, with a YTD return of 28.9%.

Commonwealth Bank of Australia (ASX: CBA) on Final Capital Requirements for NZ Banks

As per CBA, it is well positioned to meet the changes, noting that it will devise ways to minimise the increased the cost of loans with the significant RBNZ change in capital requirements.

Commonwealth Bank of Australia is Australia’s top providers of financial services to more than 17.4 million customers with a focus on commercial and retail banking.

The Reserve Bank of New Zealand (RBNZ) has confirmed that the risk-weighted assets (RWA) of internal ratings-based banks will increase to about 90%. Those banks which are considered systemically important, for them the Tier 1 capital requirement will increase to 16% of RWA and 13.5% of which must be in the form of Common Equity Tier 1 (CET1) capital.

RBNZ has given 7-year time period to banks to meet the new requirements, effective 1 July 2020.

Bank confirms the issue of CommBank PERLS XII Capital Notes

The Bank has confirmed that on 14^th November 2019, 16,500,000 CommBank PERLS XII Capital Notes (PERLS XII) were issued and allotted to successful applicants at the application price of $100 each, raising $1.65 billion. The first distribution will be $0.9188 per PERLS XII. The distribution rate of 2.7488% was calculated as follows:

(Source: Company Reports)

Dividend Story

The company declared a final dividend of $2.31 per share, bringing the total dividend for the year ended 30 June 2019 to $4.31 per share, which is in line with previous year. The final dividend was fully franked and was paid on 26^th September 2019.

Full year dividend ($ per share) (Source: Company’s Report)

Outlook

The company expects its operating context to remain challenging as it adapts to heightened regulatory change, increasing competition, evolving customer preferences and the need to invest in risk and compliance along with technology and innovation. However, the Bank seems to be well-positioned to navigate through this challenging environment, on the back of a strong balance sheet, resilient customer base and leading distribution and digital assets.

In an announcement dated 19 December, the bank has settled all the GST issues with ATO.

Stock Performance

The stock of CBA traded at $81.750 per share on 19^th December 2019 (3:43 PM AEDT). The company has a market capitalisation of $144.98 billion with an annual dividend yield of 5.26%.

The stock has given a total return of 0.20% and 0.55% in the time period of 3 months and 6 months, respectively with a YTD return of 15.40%.

Disclaimer

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