CME Group Is A Unique Dividend Gem

Many investors have an investment ‘strategy’ in which they create a portfolio of dividend-paying stocks. Investors typically use a stock screener and amend the ‘dividend yield’ parameter to identify potential investments. Stock screeners, however, have shortcomings. CME Group (CME) is a unique dividend gem often excluded from a stock screener’s output yet it might meet the search parameters.

CME Group - A Unique Dividend Gem

CME Group – A Unique Dividend Gem

Business Overview of CME Group

CME Group (CME) traces its founding back to 1898 and conducted an IPO in 2002. The firm acquired CBOT Holdings in 2007 and changed its name from Chicago Mercantile Exchange to CME Group. The firm also acquired NYMEX Holdings in 2008, Kansas City Board of Trade in 2012, and NEX Group in 2018. Today, CME Group offers markets, trading, and clearing in derivatives, futures, options, cash, and over-the-counter (OTC) products. The firm also offers data, analytics tools, and research to customers. The firm had $4,870 million in revenue in 2020. The best way to learn more about CME Group Inc. (CME) and its competition is to review ‘Item 1 – Business’ that starts on page 5 of 100 in the FY2020 10-K.

Financial Review of CME Group

Q4 and FY2020 Results

CME Group released Q4 and FY2020 results on February 10th and held its analyst call

FY2020 was a challenge due to low volatility in several asset classes. Encouraging signs with some of CME Group’s higher rate per contract products, however, was witnessed. The metals line of business also had its 5th consecutive year of record annual volume and 2021 is off to a good start. Very strong activity was also evident in the agricultural commodities line of business in Q4.

CME Group’s improved revenue in Q4 might be a sign that revenue may have stabilized after a fairly volatile year. The company reported net income to common shareholders of $0.424 billion, or $1.18 per diluted share, on $1.1 billion of revenue in Q4.

Revenue increased ~1.6% from the previous quarter but was down ~3.5% year over year. This is because CME Group is more exposed to asset classes that are cyclically depressed, including interest rates and energy.

Interest rate product trading will likely remain depressed. Secondly, energy trading is likely to recover along with the economy. Thirdly, equity index derivative trading will likely modestly decline but remain higher than pre-2020 levels.

Less hedging or speculation is occurring in CME Group’s interest rate futures given the current low short-term interest rate environment. Furthermore, the likelihood is rates will remain low until 2023.

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Disclosure:  I am long CME. I disclose our holdings which are held in the FFJ ...

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