Dividend stocks can be an excellent addition to any diversified portfolio. These stocks can be a reliable source of passive income while also providing solid stock price appreciation.
However, not all dividend payers are the same. Some stocks focus on paying out large distributions and can provide ultra-high yields. This could result in uneven income over time. Other stocks focus on prudent capital management and deliver a dependable dividend.
One stock with a long history of paying and raising its annual dividend payout is S&P Global (SPGI 0.31%). For 50 consecutive years, S&P Global has paid and increased its dividend. Here's why it can keep paying you for years.
S&P Global has a distinct competitive advantage
S&P Global assesses the creditworthiness of companies, governments, and other entities. The company analyzes factors including financial performance, debt levels, and market conditions to assign ratings to show the risk associated with lending to these entities. Investors, banks, and institutions rely on these ratings to evaluate the risks and rewards of lending to these entities, which allows them to make informed decisions.
Part of S&P Global's business resilience is the fact that it faces limited competition in the rating market. Established rating companies have a long-standing reputation, making it difficult for new players to gain similar trust and credibility. Additionally, regulatory barriers and stringent oversight are other factors that raise the barriers to entry into the industry.
According to the Securities and Exchange Commission's report on so-called nationally recognized statistical rating organizations, S&P Global holds a 50% share of the credit rating market. Its next closest competitors are Moody's Corp. and Fitch Ratings, with 32% and 12% market share, respectively.
Over the past three years, 45% of S&P Global's segment operating profit has come from its ratings business. This segment of its business faced headwinds last year amid tightening economic conditions. Fewer companies tapped into the capital markets to issue debt. Additionally, fewer structured finance deals and mergers & acquisitions resulted in a steep decline in operating profit, down 36% during the year.
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S&P Global's resilience amid cyclical credit rating dynamics
S&P Global has done a solid job of diversifying its business because credit ratings can be cyclical: it depends on how much debt is issued during a given time. The company has other operating segments, including market intelligence, commodities analysis, and indexes, which help stabilize its earnings.
Last year its market intelligence operating profit jumped to $2.5 billion, up from $676 million the previous year. This segment got a boost from its acquisition of IHS Markit, a provider of research and analytics in finance, energy, automotive, and more. It also saw strong demand in its commodities analysis and index segments, with operating profit growing 9% and 16%, respectively.
Solid growth continued in the first quarter, with revenue up 3% on a pro forma basis compared to last year. While its ratings segment's adjusted operating profit declined by 6%, market intelligence operating profit jumped by 16%.
A dividend stock with a stellar track record
S&P Global is a solid stock with several businesses that give it a steady source of income. Its position as a top credit rater has it well positioned over the long term as a trusted voice in assessing risk in debt markets.
Although profit from this business fluctuates, its research, data, and index products provide stability for the company's earnings. That's a big reason S&P Global has paid a dividend every year since 1937 and is one of less than 25 companies in the S&P 500 index that has raised its dividend payout for a half-century.
Its dividend yield is around 1%, and it has been a stable source of income and stock price appreciation over the years -- making this financial stock an excellent choice for your diversified portfolio.
