We recently compiled a list of the 8 Best Dividend Kings To Invest In For Safe Dividend Growth. In this article, we are going to take a look at where S&P Global Inc. (NYSE:SPGI) stands against the other dividend kings.
Investors often focus on stock price movements, anticipating gains, but may underestimate the value of dividends as a key component of returns. This becomes particularly attractive when looking at companies with a history of steadily increasing their dividends. That’s where Dividend Kings come into play. These businesses have consistently raised their payouts for at least 50 years. Achieving this milestone is no small feat, with only around 54 out of thousands of publicly traded US companies earning this distinction.
This dividend growth can be attributed to the solid financial positions of many high-quality companies. Since the pandemic began, these reserves have steadily increased, as a strong economy has allowed businesses to save more and earn returns on short-term investments. According to an analysis by the Carfang Group, based on the Federal Reserve’s quarterly flow of funds, US companies increased their cash holdings in the first quarter of 2024, reaching a record $4.11 trillion. This growth, supported by a resilient economy and relatively high interest rates, marked a 12.6% increase from the same period last year and was $1.28 trillion higher than pre-pandemic levels. Recent trends also showed that companies have been shifting more of their investments toward corporate and US government debt, according to Clearwater Analytics, which analyzed nearly 400 corporate portfolios with assets totaling just under $1 trillion. Despite this shift, most funds remain allocated to cash or cash-equivalent instruments, which delivered annualized returns exceeding 5.48% in May, as reported by Clearwater.
Also read: 8 Best Dividend Paying Debt Free Stocks to Invest in
Focusing on dividend growth reveals its significant appeal over the years. Stocks known for consistent dividend increases have performed exceptionally well, with the Dividend Aristocrats index standing out as a key benchmark. This index, which tracks companies with a minimum of 25 consecutive years of dividend growth, has consistently delivered strong returns, often surpassing other asset classes despite market fluctuations. ProShare emphasized the index’s value for income-focused investors, noting its history of outperforming the broader market while exhibiting lower volatility since its inception. Their report highlighted that a $10,000 investment in the index in May 2005 could have grown to over $61,000 by March 2023. The report also mentioned that the index outperformed the market during eight of the ten largest quarterly declines since 2005.
In addition to shareholder returns, dividend stocks have played a pivotal role in driving overall market performance, delivering substantial contributions. A report from T. Rowe Price highlighted that compounded dividends accounted for over 70% of global market returns. Similarly, the Harvard Business Review revealed that dividends made up nearly 37% of corporate earnings between 2003 and 2012.
Consistently maintaining dividend payouts is a significant challenge for companies, even more so than increasing them regularly. Analysts caution against falling for yield traps—stocks that offer high yields but have unreliable dividend policies. Brian Bollinger, president of Simply Safe Dividends, emphasized the importance of prioritizing quality over yield in dividend investing during an interview with CNBC. He advised focusing on high-quality companies that typically offer dividend yields of around 3% to 4%. These businesses often demonstrate consistent growth in their dividend payments, providing a steady income stream while mitigating the effects of inflation. Additionally, he noted that lower-yield stocks are generally safer, with more dependable payout structures. Given this, we will discuss some of the best dividend kings for safe dividend growth.
Our Methodology:
For this article, we scanned the list of dividend kings, which are the companies that have raised their payouts for 50 years or more. From that list, we picked 8 companies with the highest 5-year annual average dividend growth rates. The stocks are ranked in ascending order of their annual average dividend growth in the past five years. We also considered hedge fund sentiment around each stock in Insider Monkey’s database, as of the third quarter of 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A group of analysts studying data on a large monitor.
S&P Global Inc. (NYSE:SPGI)
5-Year Average Annual Dividend Growth Rate: 9.81%
S&P Global Inc. (NYSE:SPGI) ranks sixth on our list of the best dividend kings, with a 5-year average annual dividend growth rate of nearly 10%. The American capital market company offers services in financial information and analytics. Since the start of 2024, the stock has surged by nearly 18%. The impressive results demonstrate the company’s resilience across various sectors, even amidst economic challenges and intense competition.
S&P Global Inc. (NYSE:SPGI) aims to sustain a diversified revenue stream by capitalizing on various segments, including Ratings, Market Intelligence, Commodity Insights, and Indices, to drive growth and stability, even in fluctuating markets. Recently, the company has prioritized technological innovation, incorporating generative AI and introducing tools like ChatAI. Additionally, strategic actions such as divesting PrimeOne and acquiring Visible Alpha have strengthened its portfolio and enhanced its core strengths.
S&P Global Inc. (NYSE:SPGI) generated $3.6 billion in revenues in the third quarter of 2024, up 16% from the same period last year. In addition to its ratings division, the company benefits from consistent cash flow generated by its data and analytics segment. Year-to-date, it has produced nearly $4 billion in operating cash flow, marking a substantial increase from $2.4 billion during the same period the previous year.
Aristotle Atlantic Partners, LLC highlighted S&P Global Inc. (NYSE:SPGI)’s strong performance in its Q3 2024 investor letter. Here is what the firm has to say:
“S&P Global Inc. (NYSE:SPGI) contributed to portfolio performance in the third quarter, driven by growth in corporate bond issuance and refinancing activity, with expectations for further acceleration if interest rates decline. The company has also achieved better-than-expected expense and revenue synergies from its acquisition of IHS Markit.”
S&P Global Inc. (NYSE:SPGI) has been rewarding shareholders with growing dividends for the past 52 years. The company currently pays a quarterly dividend of $0.91 per share and has a dividend yield of 0.71%, as of December 9.
Of the 900 hedge funds tracked by Insider Monkey at the end of Q3 2024, 85 hedge funds owned stakes in S&P Global Inc. (NYSE:SPGI), compared with 90 in the previous quarter. The consolidated value of these stakes is more than $9.8 billion.
Overall SPGI ranks 6th on our list of the best dividend kings to invest in for safe dividend growth. While we acknowledge the potential for SPGI as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than SPGI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
