Investing in the stock market is one of the best ways to increase your wealth. The best way to do this is by buying quality stocks and holding on to them for the long haul.
One quality stock that has crushed the market for years is S&P Global (SPGI -0.85%). The ratings and analytics provider has an unparalleled competitive advantage, which has powered returns of 892% over the past 10 years, compared to the S&P 500's 288% return.
It's only one of three major companies in its industry
S&P Global is a leading provider of credit ratings, analytics, and data to capital and commodity markets. The company's most notable advantage is its credit ratings business.
There are only three major credit rating agencies, with S&P Global and Moody's Corp. each holding 40% of the total market share. A big advantage for credit ratings companies is the high entry barrier, which makes it more difficult for newer entrants to break into the market. In 2021, S&P Global's ratings segment made up 57% of its total operating profit.
The nature of the credit rating business can make earnings volatile, with revenues fluctuating based on how much credit is issued each year. However, S&P Global has a range of other revenue streams, including research and analytics (Market Intelligence segment), benchmarks (Platts segment), and indexes such as the S&P 500.
The company continues to grow across all its businesses, with each of its four segments increasing operating profit by 13% or more last year. Overall, revenue was $8.3 billion, up 11% from the previous year, while net income came in at $3.2 billion, up 29%.
High-profit margins power consistent growth
S&P Global has consistently increased revenue for the past decade and beyond. Since 2010, revenue has gained at a steady 8% compound annual growth rate (CAGR). At the same time, its net income has increased at a 12.5% CAGR.
The beauty of S&P Global's business model is that it's relatively asset-light. This helps keep operational expenses low while margins are high. In fact, during nearly 30 years, S&P Global has achieved gross profit margins of 50% and up -- with the margins only improving since 2000.
A great company that can keep winning
These stellar margins make S&P Global an excellent stock for dividend investors. For 48 years straight, the company has increased its dividend payout to shareholders. This makes it a Dividend Aristocrat and only two years away from the exclusive Dividend Kings club. While the stock's 0.82% dividend yield isn't the most impressive, its 25% payout ratio suggests the company should have no problem maintaining and increasing its dividend.
S&P Global can keep winning because of the steady demand for its products and services. Couple this with high barriers to entry, and it should continue to deliver high-profit margins, making S&P Global is an excellent business to own for the long haul.