CME Group (NASDAQ:CME) Will Pay A Dividend Of $1.15

CME Group Inc.'s (NASDAQ:CME) investors are due to receive a payment of $1.15 per share on 26th of March. This takes the dividend yield to 4.5%, which shareholders will be pleased with.

View our latest analysis for CME Group

CME Group Doesn't Earn Enough To Cover Its Payments

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last dividend, CME Group is earning enough to cover the payment, but then it makes up 105% of cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

The next 12 months is set to see EPS grow by 9.8%. If the dividend continues on its recent course, the payout ratio in 12 months could be 109%, which is a bit high and could start applying pressure to the balance sheet.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2014, the dividend has gone from $1.80 total annually to $9.85. This works out to be a compound annual growth rate (CAGR) of approximately 19% a year over that time. CME Group has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

CME Group Could Grow Its Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. CME Group has seen EPS rising for the last five years, at 9.1% per annum. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think CME Group's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 2 warning signs for CME Group that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.