Oct. 4 at 3:22 PM
I haven’t spoken about
$SPGI much in the past, and regrettably so.
It’s an incredibly high-quality businesses, that checks many of the boxes that I’m looking for in a dividend growth stock.
S&P Global provides essential financial infrastructure, like credit ratings, market indices (like the S&P 500), and data analytics.
They have four main business segments:
1. S&P Global Ratings
2. S&P Dow Jones Indices
3. S&P Global Market Intelligence
4. S&P Global Commodity Insights & Engineering Solutions
They have a 5 YR free cash flow CAGR of 15.9%, and have grown dividends at above 7% during that time period-
But make note that the free cash flow payout ratio has also been declining in the last few years, meaning they could sustainably grow dividends at a higher rate if they chose to do so. (see pic 1)
What makes this company’s free cash flow so attractive, is it’s predictability.
As of 2024, around 95.9% of their revenue was recurring!
SPGI is also quite capital light.
In 2024, the company had a free cash flow margin of 39.17%. (see pic 2)
Essentially, for every
$100 in revenue the company generated,
$39.17 became free cash flow.
When you combine the fact that 95.9% of the company’s revenue is recurring, as well as the fact that free cash flow margins have been expanding-
You get free cash flow that is growing at a high rate.
$SPGI has sold off over 12% in the last month, mainly due to weak reported performance from their peer, Factset.
$SPGI is now trading at one it’s lowest price to free cash flow ratios in the last 3 years, at 26.34. (see pic 3)
For a company projected to grow earnings and free cash flow at a double digit rate, that has a capital light business model with 95.9% of their revenue recurring, it isn’t too hard to justify paying this type of multiple if you are willing to hold for the long term.
