Readers hoping to buy CME Group Inc. (NASDAQ:CME) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. This means that investors who purchase shares on or after the 9th of September will not receive the dividend, which will be paid on the 25th of September.
CME Group’s next dividend payment will be US$0.85 per share. Last year, in total, the company distributed US$5.90 to shareholders. Looking at the last 12 months of distributions, CME Group has a trailing yield of approximately 3.4% on its current stock price of $171.89. We love seeing companies pay a dividend, but it’s also important to be sure that laying the golden eggs isn’t going to kill our golden goose! We need to see whether the dividend is covered by earnings and if it’s growing.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. CME Group paid out a comfortable 48% of its profit last year.
Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fortunately for readers, CME Group’s earnings per share have been growing at 15% a year for the past five years.
Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. CME Group has delivered 20% dividend growth per year on average over the past 10 years. It’s great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
The Bottom Line
From a dividend perspective, should investors buy or avoid CME Group? When companies are growing rapidly and retaining a majority of the profits within the business, it’s usually a sign that reinvesting earnings creates more value than paying dividends to shareholders. This strategy can add significant value to shareholders over the long term – as long as it’s done without issuing too many new shares. In summary, CME Group appears to have some promise as a dividend stock, and we’d suggest taking a closer look at it.
On that note, you’ll want to research what risks CME Group is facing. Our analysis shows 2 warning signs for CME Group and you should be aware of these before buying any shares.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
This article by Simply Wall St is general in nature. 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. Simply Wall St has no position in any stocks mentioned.