The Best Financial Data Dividend Stock for a Life of Passive Income

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One of the best things about investing is the ability to create passive income streams – in other words, income that you generate while sitting around and doing nothing. Passive income is a way to make your money work for you, and one of the easiest ways to do that is to invest in stellar companies that pay dividends.

Dividend stocks can sometimes be risky, but they don’t have to be. Some of the best dividend-paying stocks come from companies with strong competitive advantages and a proven track record of paying and increasing their dividends every year. A stock that ticks these boxes is S&P Global (SPGI 0.42%).

High barriers to entry give S&P Global an edge

S&P Global makes money in many ways, but its biggest source of income is its ratings business.

When companies want to raise money by selling debt, investors need to weigh the risks and understand the likelihood that a company will be able to repay that debt. This is where S&P Global comes in. The company provides credit ratings to companies around the world and is a key player in the fixed income market.

Credit rating companies have a substantial competitive advantage as regulations prevent new entrants from breaking into the market. As a result, two companies – S&P Global and Moody’s — control 80% of the global credit rating market.

Its rating activity slowed in 2022

Ratings are a significant part of S&P Global’s business, accounting for 49% of its total revenue in 2021.

This year, its ratings revenue has taken a hit in what chief executive Doug Peterson called “an extraordinarily challenging issuance environment.” Peterson said emissions fell in all regions, down 34%, 45% and 32% in the United States, Europe and Asia, respectively. The CEO said it was “the first time I can remember seeing declines in every category and every region since making earnings calls.”

Image source: Getty Images.

After record debt issuances in 2020 and 2021, new corporate debt sales have slowed significantly. Market volatility, accelerating inflation and rising interest rates have made investors more risk averse, creating an unfavorable environment for companies seeking to issue debt securities. Revenue from S&P Global’s ratings segment fell 26% in the second quarter and 20% in the first six months of 2022.

Its acquisition of IHS Markit contributed to its overall earnings growth

Despite the downturn in credit ratings, S&P Global is showing solid growth across its businesses.

In the first six months of the year, S&P Global’s total revenue increased 31% and its operating profit jumped 51%. This revenue growth was primarily driven by S&P Global’s acquisition of IHS Markit, a company that provides 50,000 customers worldwide with analytics and other business solutions. S&P Global entered into its agreement with IHS Markit in March and has included its results in its financial statements since then.

On a pro forma basis (excluding the IHS Markit acquisition), S&P Global’s total revenue is down 2% this year, reflecting growth in its other businesses as ratings have fallen.

S&P Global’s dividend has increased for 49 consecutive years

S&P Global’s ratings business gives it a strong competitive edge, and its revenue from a variety of sources — including its data, analytics, and index products — help smooth its results over time. The business model is asset light, meaning expenses are low while margins are high. All of this combines to make S&P Global an outstanding dividend-paying stock for long-term investors.

SPGI Total Return Level Chart

SPGI Total Performance Level given by Y-Charts.

S&P Global currently has a modest dividend yield of 0.89%, but it has increased its dividend for 49 consecutive years, putting it within a year of joining the exclusive Dividend Kings club. When you take it all together, S&P Global is a great long-term performer that beat the S&P500 and delivers a solid dividend you can count on.

Courtney Carlsen has no position in the stocks mentioned. The Motley Fool has positions in and recommends Moody’s and S&P Global. The Motley Fool has a disclosure policy.

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