When searching for stocks that offer high shareholder remuneration through cash dividends, investors usually look for stable and "safe" businesses that have high resilience to economic cycles and consequently can maintain their dividends even during economic slowdowns.
One sector that offers a great resilience to macroeconomic cycles is the exchange industry (financial services). These companies revenues are due to fees on transactions (volume) and are not strictly dependent on bull or bear markets to grow revenues. Indeed, during bear markets volume can even increase because there is a higher turnover rate on portfolios assets, meaning higher fees for exchange operators.
However, exchange operators aren't risk-free businesses, being the most prominent the technological or operational risk. They have to invest in IT solutions to provide the best services and improve their business. The backdrop of rising competition and the regulatory risk are also common to all the companies within the sector.
For income investors looking for stable dividends, exchange operators offer a very attractive opportunity. They also are a good way to diversify a stock portfolio because their businesses aren't related to common macroeconomic variables that affect the majority of other sector's companies.
The following three companies are amongst the higher yielding stocks within the exchange operator's sector.
|Company||Market Cap ($m)||Div Yield||Payout Ratio||P/E Ratio||EBITDA Margin|
|NYSE Euronext (NYX)||6,400||4.71%||53%||11.3||27.5%|
|Deutsche Boerse (DBOEY.PK)||6,220||5.62%||55%||9.78||53.3%|
|BME Group (BOLYY.PK)||1,620||10.5%||89%||8.49||70.6%|
NYSE Euronext: NYSE Euronext is the holding company and the first cross-border exchange group created by the combination of NYSE Group, Inc. and Euronext N.V., on April 4, 2007. The Company's exchanges located in Europe and the United States trade equities, futures, options, fixed-income, and exchange-traded products with approximately 8,000 listed issues.
Regarding shareholder remuneration policy, at the end of 2009 the company adopted a quarterly dividend declaration policy. Dividends for future quarters will be determined taking into account such factors as the evolving business model, prevailing business conditions, the financial results and capital requirements, without a predetermined annual net income payout ratio.
The company has maintained unchanged the dividend per share in the last three years at $1.20, meaning an average payout ratio of 53% during that time. Last year's EBITDA margin was 27.5%, within its relatively stable range of 24-31% over the last five years.
Deutsche Boerse: Deutsche Börse Group is one of the largest exchange organizations worldwide. It has an integrated business model, its product and service portfolio has a broader basis than other exchange organizations as it covers the entire process chain, from the monitored execution of trading orders, clearing, netting and transaction settlement through to post-trade custody of securities as well as the necessary electronic infrastructure and the provision of market information.
Deutsche Börse has been a listed company since February 2001. Since October 2007, the company has been included in Europe's leading benchmark index, EURO STOXX 50. The index contains the 50 largest listed public limited companies in the euro area.
Regarding shareholder remuneration policy, both the general target dividend distribution ratio of 40 to 60 percent of consolidated net income for the year and any share buy-backs are subject to capital requirements, investment needs and general liquidity considerations.
Deutsche Boerse has maintained very stable the dividend payment over the last five years, and increased by 9.5% the 2011 dividend payment to €2.30 per share. The payout ratio has also been stable around 50%, except in 2008 when it was 38%. The EBITDA margin in 2011 was 53%, near the top of the range 49%-55% observed from 2007 to 2011.
BME Group: Bolsas y Mercados Españoles - BME - is the operator of all stock Markets and financial systems in Spain. BME has been a listed company since 14 July 2006 and an IBEX 35 constituent since July 2007. In the last few years it has become a reference in the sector in terms of solvency, efficiency and profitability.
In the last three years the company has maintained the ordinary dividend stable at €1.60, and additionally paid extraordinary dividends of €0.372 per share, in 2009 and 2010. Over the last five years, and taking into account only the ordinary dividend, the average payout ratio is high at 86%. However, the company has a very strong profitability with an EBITDA margin of 70% in 2011, a margin that has been stable since 2008, enabling a very attractive shareholder remuneration policy and a high distribution of profits to shareholders.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.