If you're looking to generate passive income through investing, one excellent way to do this is through dividend stocks. S&P Global (SPGI 1.49%) has a long history of paying -- and raising -- its dividend payout annually. Over the past 49 years, the company has raised its dividend every year thanks to its strong competitive positioning and reliable income streams.
Dividend stocks can be an excellent source of returns, especially during periods of high volatility. Here's the secret to why S&P Global can keep paying you for years to come.
NYSE: SPGI
Key Data Points
S&P Global faces little competition
S&P Global's long-term success comes from its profitable, reliable business model and limited competition. The company issues credit ratings for other companies looking to raise money through debt.
The credit rating industry is incredibly difficult to break into because of regulations, creating a high barrier to entry that has resulted in three companies -- S&P Global, Moody's, and Fitch Ratings -- holding 95% of the market. S&P Global's market share is about 40%, and this competitive advantage is a huge reason its revenue is so reliable. It relies strongly on this business, which generated nearly half its revenue in 2021.
When one part of its business slowed down, another picked up the slack
S&P Global's reliance on its credit rating business could've gotten it into trouble last year if it didn't have other reliable income streams. Last year, the credit market plunged as fewer companies sold debt to raise capital. This was a result of rapid increases in interest rates by the Federal Reserve, which drastically increased the cost of borrowing for companies. Other factors, including tepid investor demand for bonds and geopolitical uncertainty, contributed to cooler debt market during the year.
Through Sept. 30, S&P Global's revenue from its rating segment fell nearly 25%. However, it shook this off and saw revenue growth during the year thanks to its other businesses. Its market intelligence segment, which provides data and analytics along with workflow solutions, grew revenue nearly 72% from last year. This segment growth was boosted by its purchase of IHS Markit, which provides insights into clean-energy technology, climate advisory solutions, and corporate emissions solutions. It also saw strong growth in demand for some of its market data and market insight products on commodities and increased subscription revenue from its index products.
Here's why it should have no problem growing its dividend
S&P Global has a modest dividend yield of 0.94%. However, the stock has been an excellent source of returns through dividends and stock price appreciation. S&P Global's stock has outperformed the S&P 500 index in the past decade, returning 653.5% versus the index's 218%.
The payout ratio is the total dividend payments divided by annual earnings and is a helpful metric when analyzing dividend stocks. The lower this payout ratio, the more sustainable the dividend, and according to research by Wellington Management and Hartford Funds, historically the safest payout ratio is around 41%. Based on this, S&P Global should have no problem maintaining and growing its dividend yield because its payout ratio is just 26.8%.
Assuming the company raises its dividend this year, which it should have no problem doing, it will mark the 50th consecutive year of dividend increases and earn the crown as a Dividend King in the process. If you're looking for a solid dividend-paying stock you can rely on, you can't go wrong with S&P Global.
