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S&P Global - >>> Is This the Best Dividend Aristocrat for the Next Decade?


Motley Fool

By Dave Kovaleski

Mar 17, 2022


https://www.fool.com/investing/2022/03/17/is-this-the-best-dividend-aristocrat-for-the-next/?source=eptyholnk0000202&utm_source=yahoo-host&utm_medium=feed&utm_campaign=article


KEY POINTS

S&P Global has increased its dividend for 48 straight years and counting.

It has three unique advantages that should allow it to continue doing so through the decade.

It just boosted its quarterly dividend for the second quarter.

This company has increased its dividend for 48 straight years. Here's why that will continue.

In a couple of years, Standard & Poor?s Global ( SPGI 1.42% ) will enter a very exclusive club -- it will become a Dividend King.

Dividend Kings are stocks that have increased their annual dividends for at least 50 straight years. Currently there are only 33 of them -- but Standard & Poor?s is knocking on the door of the king?s castle with 48 straight years of dividend increases. Not only should it become dividend royalty, but it should extend its streak of annual increases throughout the decade. Here?s why Standard & Poor?s Global will continue to deliver on its dividend.

Why S&P Global Stands Out

There are three reasons Standard & Poor's is a great dividend stock. The big one is the market-leading positions of its businesses, two of which have significant moats. Its largest business is its credit rating business. It is one of just three major credit raters, and it is the largest, tied with Moody's, with a 40% market share. While revenue here will fluctuate based on credit issuance, S&P should always dominate in this market because there's really no room for more than a few credit raters and the regulatory barrier to entry is high.

The other market-leading position is that of its indexing business. S&P is best known for its benchmarks, most notably the S&P 500. It is one of a handful of major indexers along with FTSE/Russell, MSCI, and Nasdaq. S&P, as one of the largest, should see continued growth with the explosion of exchange-traded funds, because ETFs pay fees to index owners like S&P to use their indexes.

The third major business, and the fastest growing, is market intelligence, which provides data and research for investment professionals. S&P just completed its acquisition of IHS Markit, an information and data provider for complementary markets, creating a market intelligence powerhouse -- one of the largest in its field.

So not only are each of these dominant businesses in their respective fields, but they also provide the company with a diversified revenue stream. Each of these businesses performs differently in various market cycles, so if credit issuance is down, market intelligence or indexing might be up.

This is the second key reason that S&P is a great dividend stock, because this diversity of revenue has allowed the company to consistently generate earnings over the years. Over the last 10 years through March 14, earnings have gone up about 22% on an annual basis, and the stock price has climbed 23% per year.

Lots of cash and recurring flows

These two advantages set S&P up for continued market dominance and earnings growth. But the third advantage it has is its business model. It's asset-light as it's all data-based, so it is able to keep operational expenses relatively low and its margins extremely high.

It has an operating margin -- which is the amount of profit a company makes on every dollar of sales after all expenses are subtracted -- of 50%. And, because all of its businesses generate fee- or subscription-based revenue, the income is steady and stable. That gives the company tons of cash, currently about $6.5 billion even after the acquisition of IHS Markit, which is the key to sustaining a dividend.

S&P just raised its dividend for the next quarter, bumping it up to $0.85 per share from $0.77, a 10% boost. It pays out a yield of 0.90%, which is lower than the average yield on the S&P 500, but very sustainable with a payout ratio of 22%.

When you consider the unique advantages that S&P Global enjoys, it is clear that the company should be able to deliver a rising dividend throughout the decade.

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