Blue-chip stocks can be an excellent way to build wealth in the stock market. These companies have a reputation for delivering dependable returns thanks to their proven business models and industry-leading positions.
S&P Global (SPGI 0.54%) is one dividend stock that is a shining example of the reliability and stability blue-chip stocks are known for. S&P Global recently raised its dividend payout for the 50th consecutive year and has earned its designation as a Dividend King. With the market down over the last year, S&P Global trades at a discount from its longer-term valuation. Here's why this Dividend King could be a solid income stock to add to your portfolio today.
A key player in global debt markets
When companies and governments look to raise money by issuing debt, investors must weigh the risks and rewards of owning that debt. That's where S&P Global comes in. S&P Global provides credit ratings and is a key player in the fixed-income space. It has a massive competitive advantage because the credit-rating industry is tough to break into.
According to the report by the Securities and Exchange Commission (SEC) on nationally recognized statistical rating organizations, S&P Global has a 50.4% share of the credit-ratings market. Its two closest competitors, Moody's and Fitch Ratings, have a 31.6% and 12.4% market share, respectively. Credit ratings are a big part of S&P Global's business, accounting for 45% of its total segment-operating profits.
Debt issuance plummeted, but another segment picked up the slack
Last year was challenging for S&P Global's ratings business as its operating profit fell by 36%. Lower corporate bond issuance, fewer structured finance deals, and fewer merger and acquisitions (M&A) deals weighed on the business. However, solid growth in its market intelligence segment buoyed its earnings. This segment provides data and analytics to investment professionals, government agencies, and corporations to track investment performance, perform valuations, and manage credit risk.
Last year, the segment put up an operating profit of $2.5 billion, up from $676 million the prior year. The segment got a boost from acquiring IHS Markit, which provides data on clean-energy technology, climate solutions, and corporate emissions. Subscription revenue, its primary revenue source in the segment, grew 53% from the prior year.
Despite tough credit markets, S&P Global's balanced business saw revenue growth of 35% and operating profits grow by 17%.
Things are looking up for S&P Global
Relative to its recent history, S&P Global looks like a good deal. Today's price-to-earnings (P/E) ratio is 31.8, below its 10-year average P/E ratio of 40. Its one-year forward P/E ratio (based on its expected earnings the next year) is even cheaper at 23.2.
SPGI PE Ratio data by YCharts.
S&P Global is a crucial player in fixed-income markets that pays a sustainable dividend that yields 1.03%. Last year, it was hurt by less debt issuance, but its business showed resilience. Early signs point to a rebound in debt issuance in 2023. According to the Securities Industry and Financial Markets Association (SIFMA), corporate bond issuance is up 20.8% in the first two months of this year as investors look to capitalize on high-yielding debt.
S&P Global has a balanced business, and the rebound in lending markets should give it a boost this year, making this one solid blue-chip dividend stock worth adding to your portfolio today.
