A stock portfolio should be diversified with a variety of companies that perform well in many different market conditions. A mix of investment styles and sectors will also help you navigate short-term volatility. But every good portfolio needs rock-solid stocks that can perform in just about every cycle to provide much-needed ballast.
One of those stocks is S&P Global (SPGI 2.07%). You'll be hard pressed to find a more consistent performer. It is one stock you can count on to keep winning this year and beyond.
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A leader in multiple markets
S&P Global is, of course, the company that owns the S&P 500 and several other indices, including the Dow Jones Industrial Average, which it runs through a partnership. But it also has a few other lucrative business lines -- a credit rating business and a market intelligence business, which provide data and research for investment professionals. It also owns Platts, which provides market data and information for the energy and commodities industries. The credit ratings arm accounts for about 48% of revenue, followed by market intelligence at 28%, and the indices and Platts, both with about 12% of revenue.
In the third quarter, all segments saw revenue gains, with the credit ratings business seeing a 13% spike in revenue. Net income fell 26% year over year to $455 million, but that was primarily because the company paid down $279 million of debt ahead of time at a lower interest rate.
It's a great mix of revenue and it's all based on fees or subscriptions, which produces steady, repeatable income. Plus, S&P Global is a market leader in the credit ratings and indices businesses. There are only three major players in the credit ratings business, and S&P Global and Moody's are the largest, each with a 40% market share. Not only is there very little competition, but there's little chance there will ever be more than a few players, because only a few credit rating agencies are required. The income in this business will spike when credit issuance is higher, but even when there is a downturn in issuance, it is usually temporary -- and that business is not going anywhere else.
The index business is similar, in that S&P Global is the major player in a field with a limited number of participants. The income is steady and consistent from the fees it charges for listings as well as transactions. In times of volatility, the income from this segment will jump, which provides good protection in volatile markets. In 2020, the indices business saw a 7% increase in revenue year over year.
Consistency you can count on
S&P Global's market intelligence business has been consistently growing, and it tends to do well in down markets when investors seek out more information and data. Market intelligence is the company's second-largest revenue generator and it is about to get bigger -- S&P Global acquired IHS Markit for $44 billion in an all-stock deal.
IHS Markitʻs expertise is largely complementary to that of S&P Global, with some overlap in energy and financial services. It specializes in areas where S&P Global lacks, like transportation research and data, fixed income index, and data on corporate and sovereign bonds. The deal, if it goes through, would increase S&P Global's market share and cement its place as the third-largest global market data provider behind Bloomberg and Refinitiv. The acquisition is expected to be accretive to earnings by the end of the second full year after closing, with about $390 million in cost savings by then.
While HIS Markit will bring $4.8 billion in debt, S&P Global is asset-light with high operating margins of over 50% and double-digit annualized earnings growth over the past 10 years.
The stock price has not posted a negative annual return since 2008, and it's a Dividend Aristocrat, with 47 straight years of annual dividend increases. In 2021, the company just declared a 15% dividend increase to $0.77. That is consistency you can count on.
