Yahoo Finance Should CME Group Inc (NASDAQ:CME) Be Part Of Your Dividend Portfolio?
Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. Historically, CME Group Inc (NASDAQ:CME) has been paying a dividend to shareholders. Today it yields 3.3%. Let’s dig deeper into whether CME Group should have a place in your portfolio.
Check out our latest analysis for CME Group
5 questions I ask before picking a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
Is it paying an annual yield above 75% of dividend payers?
Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
Has it increased its dividend per share amount over the past?
Can it afford to pay the current rate of dividends from its earnings?
Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
How does CME Group fare?
The current trailing twelve-month payout ratio for the stock is 21%, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect CME’s payout to increase to 85% of its earnings, which leads to a dividend yield of around 3.2%. However, EPS is forecasted to fall to $6.82 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.
When considering the sustainability of dividends, it is also worth checking the cash flow of a company. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.
If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. Although CME’s per share payments have increased in the past 10 years, it has not been a completely smooth ride. Investors have seen reductions in the dividend per share in the past, although, it has picked up again.
Compared to its peers, CME Group has a yield of 3.3%, which is high for Capital Markets stocks but still below the market’s top dividend payers.
Next Steps:
Considering the dividend attributes we analyzed above, CME Group is definitely worth keeping an eye on for someone looking to build a dedicated income portfolio. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. Below, I’ve compiled three pertinent aspects you should further examine:
Future Outlook: What are well-informed industry analysts predicting for CME’s future growth? Take a look at our free research report of analyst consensus for CME’s outlook.
Valuation: What is CME worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether CME is currently mispriced by the market.
Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
