Around the world, exchanges facilitate billions of trades each day – and the volume is growing. By the start of 2021, the daily average trading volume was nearly double that of 2019. That’s good news for the exchanges that connect buyers and sellers. Every transaction generates fees, and given the high margins exchanges enjoy, a generous portion of those fees translate into profit.
The Chicago Mercantile Exchange, operated by CME Group, specializes in derivatives. It is widely considered the most significant derivatives exchange in the United States, in league with Nasdaq and the New York Stock Exchange, which is owned by Intercontinental Exchange.
Its leadership position in the derivatives market, reasonably steady profit margin, and commitment to consistent dividends has investors examining whether CME Group is a good investment in this uncertain economy?
CME Group Announces Second Quarter 2021 Results
On July 28, 2021, CME Group (CME) announced its results for the period ending June 30, 2021. Total second-quarter revenue came in at $1.2 billion, which includes $930 million in clearing and transaction fees.
Cash markets and optimization services businesses generated another $106 million, and most of the rest came from CME Group’s electronic banking services (EBS) and BrokerTec services.
CME Group reported adjusted net income of $589 million and adjusted diluted earnings per share (EPS) of $1.64. This success allowed the firm to declare dividends of $322 million during the second quarter.
In a statement, CME Group noted that since it implemented a variable dividend policy in 2012, it has returned more than $15.9 billion to shareholders through the program.
CME Group Dividend History
Plenty of companies pay dividends to shareholders, and a small percentage are noted for consistently increasing dividends each year. CME Group has taken this commitment to shareholders one step further with a variable divided program that puts the firm’s profits directly into the hands of its investors.
Essentially, when the company has a profitable year, a variable dividend is announced. That amount is in addition to quarterly dividends, which have increased steadily since 2011.
In 2020, the combination of four quarterly dividends and a variable dividend of $2.50 per share delivered a combined yield of roughly 3.1 percent. Compared to peers in the finance sector, that’s on the higher side. For example, Intercontinental Exchange’s dividend yield rarely goes above 1.4 percent.
Since 2011, CME Group has delivered the following dividends to shareholders:
2021 (YTD)
- 09/09/2021 – $0.90
- 06/09/2021 – $0.90
- 03/09/2021 – $0.90
2020
- 12/24/2020 – $2.50
- 12/09/2020 – $0.85
- 09/09/2020 – $0.85
- 06/09/2020 – $0.85
- 03/09/2020 – $0.85
2019
- 12/26/2019 – $2.50
- 12/09/2019 – $0.75
- 09/09/2019 – $0.75
- 06/07/2019 – $0.75
- 03/07/2019 – $0.75
2018
- 12/27/2018 – $1.75
- 12/07/2018 – $0.70
- 09/07/2018 – $0.70
- 06/07/2018 – $0.70
- 03/08/2018 – $0.70
2017
- 12/27/2017 – $3.50
- 12/07/2017 – $0.66
- 09/07/2017 – $0.66
- 06/07/2017 – $0.66
- 03/08/2017 – $0.66
2016
- 12/23/2016 – $3.25
- 12/07/2016 – $0.60
- 09/07/2016 – $0.60
- 06/08/2016 – $0.60
- 03/08/2016 – $0.60
2015
- 12/23/2015 – $2.90
- 12/08/2015 – $0.50
- 09/08/2015 – $0.50
- 06/08/2015 – $0.50
- 03/06/2015 – $0.50
2014
- 12/24/2014 – $2.00
- 12/08/2014 – $0.47
- 09/08/2014 – $0.47
- 06/06/2014 – $0.47
- 03/06/2014 – $0.47
2013
- 12/24/2013 – $2.60
- 12/06/2013 – $0.45
- 09/06/2013 – $0.45
- 06/06/2013 – $0.45
- 03/06/2013 – $0.45
2012
- 12/13/2012 – $1.30
- 12/06/2012 – $0.45
- 09/06/2012 – $0.45
- 06/06/2012 – $2.23
- 03/07/2012 – $5.23
2011
- 12/15/2011 – $1.40
- 09/07/2011 – $1.40
- 06/16/2011 – $1.40
- 03/08/2011 – $1.40
Spot a pattern?
In recent years, the dividend spike has come near the end of the year, which begs the question whether CME Group investors are bidding up the stock in anticipation of that dividend hike as Q4 approaches.
While CME Group’s dividend history doesn’t guarantee future dividend increases – or even that dividends will be paid at all – the firm has demonstrated a commitment to returning value to shareholders.
Some analysts speculate that CME Group intends to join the ranks of the Dividend Aristocrats – an elite group of businesses that have consistently increased their dividends each year for 25 years or more.
What’s Next for CME Group?
Management made minor adjustments to 2021 full-year guidance, but overall, expectations remained unchanged. Total adjusted operating expenses are expected to come in around $1.56 billion, which is $15 million less than originally projected.
Capital expenditures (CapEx) are expected between $180 million and $190 million, and the firm’s adjusted effective tax rate should fall between 23.2 percent and 24.2 percent. The C-suite indicated that CME Group is on track to achieve its target of $200 million in cumulative run-rate synergies. Combined, these figures indicate that shareholders have a lot to look forward to in future years.
Does that make CME Group stock a buy?
Most income investors say yes. In general, the median analyst estimate for the next 12 months suggests stock prices may rise 12 percent or more, which is a solid return on its own. When combined with potential dividends, CME Group stock looks like a buy.
From a discounted cash flow perspective, the fair market value of CME Group shares sits at $218 per share. That represents almost a 10% upside opportunity for investors from where CME share price currently sits – just south of $200 per share at the time of research.
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