CME Group (NASDAQ:CME) Is Increasing Its Dividend To $4.50
The board of CME Group Inc. (NASDAQ:CME) has announced that it will pay a dividend of $4.50 per share on the 18th of January. Based on this payment, the dividend yield on the company's stock will be 4.8%, which is an attractive boost to shareholder returns.
Check out our latest analysis for CME Group
CME Group Is Paying Out More Than It Is Earning
If the payments aren't sustainable, a high yield for a few years won't matter that much. The last payment was quite easily covered by earnings, but it made up 115% of cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.
Over the next year, EPS is forecast to expand by 18.9%. Assuming the dividend continues along recent trends, we think the payout ratio could reach 106%, which probably can't continue without putting some pressure on the balance sheet.
Dividend Volatility
The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2012, the annual payment back then was $1.78, compared to the most recent full-year payment of $8.50. This works out to be a compound annual growth rate (CAGR) of approximately 17% a year over that time. CME Group has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.
The Dividend Looks Likely To Grow
With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. We are encouraged to see that CME Group has grown earnings per share at 11% per year over the past five years. While on an earnings basis, this company looks appealing as an income stock, the cash payout ratio still makes us cautious.
Our Thoughts On CME Group's Dividend
While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. We don't think CME Group is a great stock to add to your portfolio if income is your focus.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 1 warning sign for CME Group that you should be aware of before investing. Is CME Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
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