S&P Global – SPGI – An Impending Dividend King

S&P Global (SPGI) has paid a dividend annually since 1937 and has increased its dividend annually for at least the last 48 years. However, some investors may rule it out as a potential investment because of its sub 1% dividend yield.

As investors, we have our respective objectives and goals which influence our investment decision-making process. If dividend income is of primary importance, it is understandable why SPGI may not be an ideal investment. I, however, consider SPGI to be a good investment from a total investment return perspective.

On October 25, 2018, I initiated a position within one of the ‘Side’ accounts in the FFJ Portfolio.

I subsequently initiated a position in MCO in the same account on October 26, 2018.

My rationale for investing in SPGI and MCO is I have no idea which company will generate the best long-term return. In addition,

  • they are leading global integrated risk assessment firms;
  • their respective valuation was reasonable;
  • they are not capital intensive companies;
  • they generate strong Free Cash Flow (FCF); and
  • the outlook for both firms is promising.

The purchase price in 2018 was $175.88. The quarterly dividend at the time was $0.50 resulting in a ~1.1% dividend yield. As a Canadian resident who holds these US-listed shares in a taxable account, I incur a 15% dividend withholding tax. My dividend yield at the time of purchase was, therefore, ~1%.

On January 19, 2021, I re-analyzed SPGI and acquired additional shares at $307.651/share. I hold these shares in a taxable account that is a component of the ‘Core’ accounts within the FFJ Portfolio.

On March 16, 2021, I transferred the SPGI and MCO shares purchased in 2018 between investment accounts for tax planning purposes. SPGI’s share price at the time of transfer was ~$349 and that of MCO was ~$297. These transfers triggered capital gains but future capital gains will be taxed at a favourable rate.

While SPGI’s long-term outlook is positive, the share price has appreciated rapidly since the beginning of 2021. We can not rule out a pullback and must be careful not to grossly overpay to acquire shares. Ask any investor who invested in Intel (INTC) or Cisco (CSCO) at the height of the .com craze. Twenty years later and their respective share price has still not reached the peak share price!

SPGI – An Impending Dividend King – Overview

SPGI is synonymous with credit ratings. However, SPGI’s operations are far broader. It currently has 4 reportable segments:

  • S&P Global Ratings;
  • S&P Global Market Intelligence;
  • S&P Global Platts; and
  • S&P Dow Jones Indices.

Part 1, Item 1 in the FY2020 10-K provides a good overview of each segment.

Item 1A discloses and addresses key identifiable risks.

The FY2020 edition of SPGI’s comprehensive annual Investor Fact Book also contains a wealth of information.

SPGI – IHS Markit Merger

In addition to the existing reportable segments, SPGI and IHS Markit (INFO) announced on November 30, 2020, that they had entered into a definitive merger agreement to combine in an all-stock transaction which values IHS Markit at an enterprise value of $44B, including $4.8B of net debt.

The merger of unique and highly complementary assets will leverage the innovation and technology capabilities of both companies to enhance the customer value proposition.

The anticipated benefits of combining both companies include, but are not limited to:

  • improved recurring revenue;
  • margin expansion; and
  • strong free cash flow.
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Disclosure: I am long SPGI, MCO, JNJ, CSCO, and CME. 

I disclose holdings held in the FFJ ...

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