CME Group Rewards Shareholders with Variable Dividend
The board of directors of the derivative giant – CME Group Inc. (CME) recently announced a special annual variable dividend of $2.00 per share. This is in addition to the four regular quarterly dividend payouts of 47 cents each.
Per its dividend policy, CME Group pays out 50% of its prior-year earnings in four quarterly dividends each year. Any excess earnings are paid out as a fifth or variable dividend. In Feb 2012, the company had hiked this payout to 50% from 35%.
The latest annual variable dividend, payable on Jan 13, 2015 to shareholders of record as on Dec 29, 2014, will mark the third such payout in the history of CME Group. The first such variable dividend payment worth $199 million was distributed in 2013.
However, the latest special dividend of about $673 million stands about 23% lower than $872 million or $2.60 per share paid out in Jan 2014. The lower-than-expected payout also explains the 0.6% fall in the share price following the announcement, thereby closing at $88.48 per share on Thursday.
Rationale
Nevertheless, the current dividend payment appears reasonable given the pressure that trading volumes and pricing experienced for most of the year, and the inorganic growth plans that are underway. Yet, CME Group’s disciplined expense management and organizational realignment to accelerate cash flows and earnings growth remain laudable. Going ahead in 2015, management even expects to keep expenses at a level similar to 2014.
Furthermore, with adequate liquidity of about $1.2 billion and a strong debt profile with no maturity at least until 2018, CME Group holds a secure capital position, which aids efficient capital deployment. Previously, in Feb 2014, the company had also hiked its quarterly dividend by 4% to 47 cents per share from the prior payout of 45 cents. Another increase in regular dividends can be expected early next year.
Peer Take
Notably, in Jan 2014, arch-rival CBOE Holdings Inc. (CBOE) had paid a special dividend worth 50 cents per share. In Aug 2014, the company further raised its regular dividend by 17%.
Another peer, Nasdaq OMX Group Inc. (NDAQ) hiked its regular dividend by 15% in Mar 2014. Another close peer, Intercontinental Exchange Inc. (ICE), also initiated dividend payouts this year, post the NYSE acquisition.
Zacks Rank
CME Group carries a Zacks Rank #3 (Hold) currently.
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