CME Group Is A Unique Dividend Gem

Interestingly, S&P Global announced in late 2020 its intent to acquire IHS Markit.

Risk Assessment

A schedule of CME’s long-term debt and related interest rate swaps is found on page 69 of 110 in the FY2020 10-K.

The major credit rating agencies undertake a comprehensive review of a company and assign a risk rating. I use these ratings to gauge if my risk as an equity investor is reasonable.

Moody’s rates the unsecured long-term debt Aa3, S&P Global rates it AA-, and Fitch rates it AA-. All ratings are stable and are the lowest tier of the high-grade investment-grade category. These ratings indicate CME Group has a VERY STRONG capacity to meet its financial commitments.

The current ratings are satisfactory for my risk profile.

Dividends and Dividend Yield

Go to go to the stock screener you generally use. Select the USA as the Country, Market Cap above $10 billion, and select 1% in the Dividend Yield field. Based on the current ~$205 share price, CME will appear in the search results. Repeat this process with 2% in the Dividend Yield field. Now, CME does not appear in the search results.

If you look at CME’s dividend history, however, you will see CME declared $5.90 of dividends in 2020. This is a ~2.9% dividend yield based on the current ~$205 share price. This is because of a variable dividend policy introduced in 2012. The policy stipulates that excess cash is swept to shareholders in the form of a ‘special dividend‘. It is declared in the first half of December and is distributed in mid-January.

I look at a company’s dividend CAGR to see if the dividend growth rate outpaces the rate of inflation. In the case of CME Group, the $0.05/share quarterly dividend increase from $0.85 to $0.90 per share is a ~5.9% increase. This outpaces the rate of inflation. I also know it is only one component of the company’s overall dividend.

Let’s look at CME Group’s dividend CAGR.

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CME has consistently increased its quarterly dividend over a prolonged timeframe. The stock is a Dividend Contender. The ‘special dividend’, however, does fluctuate. This explains the huge swings in the company’s annual dividend growth rate and it is difficult to determine the forward dividend yield. The chart from StockRover* illustrates the dividend growth.

Source: StockRover*

Let’s presume CME Group declares another $2.50 ‘special’ dividend in December. The $0.90/quarter dividend and the ‘special’ dividend would amount to $6.10 or a ~2.9% dividend yield based on the ~$209 share price. If the share price drops to my recommended ‘buy below $175’ price, the dividend yield is ~3.5% or better.

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

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