Thomson Reuters: Paying Higher Dividends For 24 Consecutive Years

Thomson Reuters (TRI) has raised its dividend for 24 straight years and is arguably one of the safest sources of income in the market for investors living on dividends in retirement.

The company’s business benefits from selling mission-critical solutions and generates significant amounts of recurring revenue (86% of sales), which results in very predictable cash flow and a high Dividend Safety Score.

Thomson Reuters has also been improving its earnings profile through various transformational strategies and expects its adjusted EPS to grow at a double-digit rate this year.

Let’s take a closer look at this reliable dividend growth stock to see if its future remains bright and if its valuation is reasonable today.

Business Overview

Thomson Reuters was created when Thomson acquired Reuters (a 160-year-old global news and financial data service) for about $17 billion in early 2008.

Many of the company’s solutions were assembled through hundreds of acquisitions made over the years. However, the organization is now focusing on growing organically and transforming into more of an integrated enterprise.

Today, Thomson Reuters is the world’s leading source of news and information for professional markets, selling electronic content and services primarily on a subscription basis. Its businesses provide solutions, software, and workflow tools which integrate its core data and information.

Approximately 86% of Thomson Reuters’s revenue is recurring and is derived from subscription or contractual arrangements, which most customers renew annually. About 93% of its revenue is from information delivered electronically or as software and services.

By geography, Thomson Reuters generated 62% of its 2016 sales from the Americas, 27% from Europe, the Middle East and Africa (EMEA), and 11% from Asia Pacific. The company caters to the needs of various financial and risk, legal, tax and accounting, intellectual property and science and media markets in more than 100 countries.

Segments

In October 2016, Thomson Reuters sold its Intellectual Property & Science business in order to focus more on global trade news and regulation opportunities. The company’s business is now organized in three business units:

Financial & Risk (55% of 2016 revenue; 48% of operating profit): provides critical news, information and analytics, enables transactions and connects communities of trading, investment, financial and corporate professionals. It also provides regulatory and risk management solutions. The segment has witnessed higher growth from Elektron Data Platform and Risk products as desktop revenues have been declining.

Legal (31% of sales; 40% of operating profit): provides critical online and print information, know-how, decision tools, software and services that support legal, investigation, business, and government professionals around the world.

Tax & Accounting (14% of sales; 12% of operating profit): provides integrated tax compliance and accounting information, software and services to professionals in accounting firms, corporations, law firms and government.

Business Analysis

At a high level, one of the first things to like about Thomson Reuters’ business is that professionals will always need more the data and analysis it provides. Knowing more about mission-critical topics (e.g. geopolitical risks, transformative technology, currency movements, regulatory changes, etc.) helps people make better informed decisions, adapt to change, solve tough problems, and create more successful outcomes.

Thomson Reuters helps its customers accomplish these timeless objectives with its vast array of electronic content. As long as knowledge is valued by key decision-makers, there will be a need for Thomson Reuter’s intelligence, technology and human expertise.

Over the course of many decades, Thomson Reuters has established a strong position of trust, and its news has a reputation for speed and integrity.

Many of Thomson Reuters’ customers use its solutions as a part of their workflows, which has led to strong customer retention. As a result, the company maintains #1 or #2 market share positions in most of the segments that it serves.

The company’s deep industry knowledge, proprietary databases, trusted reputation, and embeddedness in customers’ mission-critical workflows have all contributed to the company’s moat.

Replicating Thomson Reuters’ unique databases, enterprise solutions, tools, and platforms would be an extremely costly and time-consuming endeavor, especially when you consider that many of its solutions have been built up from hundreds of acquisitions over the years.

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Disclosure: None. 

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