Impressive Performance by this Data Provider

SPGI - S&P Global Inc

S&P Global is a leading provider of independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide. It has operations in more than 31 countries and it utilizes both proprietary as well as third-party distribution channels to serve its global customers.

The company’s key segments are S&P Global Ratings (50% of 2018 operating profit – provides credit ratings, research, and analytics), S&P Global Market Intelligence (18% – provides multi-asset-class data, research and analytics globally), S&P Dow Jones Indices (19% – global index provider) and S&P Global Platts (13% – provides information and benchmark prices for the commodity and energy markets). The U.S is the largest market for S&P Global accounting for 60% of total revenue while the balance is derived from Europe (25%), Asia (10%) and RoW (5%). S&P 500 and S&P Dow Jones are the most popular indices worldwide.

More than 40% of S&P’s total revenues are subscription based, followed by non-subscription revenues (23%), non-transaction revenue (22%), asset linked fees (9%) and royalties (3%).

Investment Data

Revenue Growth & Market Exposure

With more than 150 years of expertise, S&P has earned a solid reputation and is trusted for its unbiased ratings and market intelligence reports by companies, governments, and individual clients worldwide. It is very difficult for a new entrant to build the same trust factor as well as the extensive database of such size and magnitude. S&P Global has been developing new tools for intelligent mining of billions of data points all over the world. The company is also focusing on its core business and markets and has exited non-core assets.
S&P Global is continuously engaged in developing new products and strategic partnerships to maintain a competitive edge over the competition. There is a need for intelligent research and analysis in the capital and commodity market and S&P Global with its rich data, research, benchmark, and analytic capabilities, is well-suited to address this rising demand. Impeccable investor reputation and a solid footprint in corporate markets are S&P’s strong competitive advantages. S&P Global is well-positioned to capitalize on opportunities, as capital markets continue to evolve.

S&P Global is expecting its next phase of growth to come from its unified digital platform, automation, robust IT infrastructure and reducing costs. The company has further strengthened its analytics, artificial intelligence, machine learning, and data visualization capabilities with the acquisition of Kensho Technologies Inc. last year. It is also expanding its presence in China to capture growing market opportunities there.

Dividends

S&P Global is a dividend aristocrat with a solid dividend growth streak of 46 years. S&P Global has paid a dividend each year since 1937 and also increased them for the last 46 years. The company last increased its dividend by almost 14% which was double the dividend growth rate paid by the company a decade ago. Dividends paid and share repurchases during 2018 totaled more than $2 billion. S&P’s three-year dividend growth rate is almost 15% CAGR. Its EPS has also grown at an impressive 22% CAGR in the last three years.

S&P Global recorded double-digit growth in diluted EPS in the last year as well. The company has guided to increase its EPS by ~9% next year. A low payout ratio of 30% further indicates enough scope for future dividend growth. Its annual average yield is very low at 0.96%.

S&P also introduced a rigorous framework for capital management and allocation in 2017. As per this strategy, the company plans to return at least 75% of free cash flow to shareholders through disciplined buybacks, dividends, and dividend growth.

Given its impressive research acumen and financial know-how, S&P Global is in a good position to gain from growing global trade flows and new capital markets in emerging markets. Strong investor reputation, a highly regulated industry, and proprietary datasets form a deep moat around S&P’s business.

Competition

Markets for research, investment advisory services, and index providers are very competitive. S&P Global faces competition both domestically and internationally. Bloomberg, Moody’s, FactSet, Thomson Reuters, Morningstar, etc. are its top competitors. Thomson Reuters is a leading global source of data and information for professional markets and caters to the needs of its clients operating in law, tax, compliance, government, and media industries. Transparency and independence are S&P Global’s core strengths.

Bottom Line

S&P Global has created a worldwide reputation for providing independent and transparent benchmarks for capital markets. This has helped the company not only to retain but also grow its customer base over the years. The company has an impeccable history of paying dividends every year since 1937 and has also increased them for the last 46 years. With a low payout ratio of 30%, shareholders can expect S&P Global to continue its double digit growth streak in the future.

SPGI can have a place in your portfolio but not for the income. This is a moderate dividend growth stock with great stock performance. The yield is low and the dividend growth has accelerated over the past 5 years compared with the 10 year history.

SPGI vs Indexes

DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.

DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.
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