The Federal Reserve’s Sept. 18 decision to cut interest rates by 50 basis points, with more rate cuts expected at this year’s remaining two meetings, opens a new chapter for investors. This long-awaited policy shift, aimed at supporting the economy, could provide a particular boost for exchange operators, equity markets, and IPO activity, according to investment management firm Oppenheimer.
Analysts Owen Lau and Guru Sidaarth, in a recent note, pointed out that lower interest rates generally encourage debt refinancing, benefiting S&P Global Inc. (SPGI) as a leader in credit ratings and analytics. Plus, SPGI and peers like MSCI Inc. (MSCI) and Nasdaq, Inc. (NDAQ), with their index businesses, could benefit from equity market stability. Healthy equity markets may also reopen the IPO window, driving further growth for Nasdaq beyond its Verafin and Adenza fraud detection and software units.
And with dividend stocks regaining appeal as bond yields fall, SPGI, MSCI, and NDAQ present an appealing mix of stable income and growth potential. Here’s a closer look at these three stocks for investors seeking to diversify their portfolios and secure steady passive income in a lower-rate environment.
Dividend Stock #1: S&P Global
Since 1860, S&P Global Inc. (SPGI) is a financial markets powerhouse, with a market cap of around $161.1 billion. As a leading analytics and credit rating agency, it's the driving force behind the iconic S&P 500 Index ($SPX), which tracks the performance of (roughly) 500 major U.S. companies, and is the ultimate barometer for market health.
The company delivers diverse services, including credit ratings, equity benchmarks, and data analytics across various sectors, like capital markets and commodities. With segments like S&P Global Ratings and S&P Dow Jones Indices, it empowers investors and businesses worldwide with vital insights, making SPGI an essential player in the global financial landscape.
The Fed’s interest rate cuts could boost S&P Global by lowering borrowing costs, enhancing debt refinancing opportunities, and driving demand for its financial analytics and ratings services, ultimately supporting growth and profitability in a shifting market.
Shares of the market data provider have surged 44.7% over the past 52 weeks and 20.9% over the past six months, outperforming its own benchmark S&P 500 Index's 34.8% and 19.6% returns, respectively.
Priced at 35.20 times earnings and 12.83 times sales, S&P Global trades at a discount to its closest peers, such as Moody's Corp (MCO). For a financial powerhouse hitting its stride, these numbers signal a potential buying opportunity in SPGI.
S&P Global also stands out for its commitment to passive income investors. Crowned a “Dividend King,” SPGI has rewarded shareholders with annual dividend increases for five decades.
On Sept. 24, S&P Global declared a Q4 dividend of $0.91 per share, payable to its shareholders on Dec. 11. SPGI offers an annualized dividend of $3.64 per share, translating to a yield of 0.71%.
The payout ratio stands at a comfortable 25.07%, reflecting S&P Global’s dedication to rewarding its investors while continuing to grow and innovate. This blend of value and reliability makes SPGI a compelling pick for those seeking stability and returns.
S&P Global reported solid fiscal Q2 earnings results on July 30, sailing past Wall Street’s forecasts. Its total revenue rose 14.5% year over year to $3.6 billion, beating estimates by 3.9% on strength in the Ratings Division and the successful integration of IHS Markit. Its adjusted EPS climbed 30% annually to $4.04, topping the analyst consensus by 10.1%. This was driven by a combination of its strong revenue growth, 450 basis points of margin expansion, and a 2% reduction in fully diluted share count.
SPGI’s cash, cash equivalents, and restricted cash amounted to $2 billion, compared with $1.3 billion as of Dec. 31, 2023, while long-term debt amounted to $11.4 billion. Plus, the company generated $2.5 billion in cash from operating activities for the first half of 2024.
Looking ahead, management raised its fiscal 2024 adjusted EPS guidance to a range between $14.35 and $14.60, up from a previous forecast of $13.85 to $14.10. Revenue growth is estimated between 8% and 10%. S&P Global also raised its adjusted free cash flow projection to $4.7 billion, and plans to return 85% of that to shareholders through dividends and buybacks, underscoring its commitment to delivering value to investors.
Analysts tracking S&P Global predict EPS of $14.57 in fiscal 2024, up 15.6% annually, with the bottom line projected to surge another 10.8% to $16.15 in fiscal 2025.
SPGI stock has a consensus “Strong Buy” rating overall. Among the 19 analysts covering the stock, 16 suggest a “Strong Buy,” two advise a “Moderate Buy,” and one analyst maintains a “Hold.”
The mean price target for SPGI is $555.82, indicating an upside potential of 8% from current levels. The Street-high target price of $610, newly raised by Barclays, implies that the stock could rally as much as 18.5%.
Dividend Stock #2: MSCI
Valued at a market cap of $46.8 billion, MSCI Inc. (MSCI) is a global powerhouse in the investment world’s decision-making. Since 1998, it has been helping investors navigate global markets with precision tools and insights. From crafting indexes that power exchange-traded funds (ETFs) and mutual funds to offering risk management and ESG solutions, MSCI’s expertise shapes portfolios and strategies worldwide.
This New York-based firm’s analytics dive deep into market, credit, and climate risks, while its real estate and private asset solutions provide crucial benchmarks. As the Fed lowers interest rates, MSCI could benefit from increased investment activity, further empowering investors to make informed decisions in a changing landscape.
MSCI stock rose 18.9% over the past 52 weeks, with an impressive 20% surge in just the last three months.
Priced at 38.94 times forward earnings and 17.91 times sales, the stock trades at a discount to its five-year averages of 44.29x and 18.85x, respectively.
But there is more to this stock than just a good deal. For nine consecutive years, MSCI has steadily grown its dividend. On Aug. 30, it paid a $1.60 per share quarterly dividend, which translates to an annualized payout of $6.40 and a forward yield of 1.08%. With a payout ratio of 41.5%, MSCI strikes a balance between rewarding investors and keeping enough fuel in the tank for future growth.
On July 23, MSCI jumped 7.9% after smashing Q2 earnings expectations. With adjusted EPS soaring 11.7% year over year to $3.64 per share and revenue of $707.9 million rising 14% annually, MSCI outpaced Wall Street’s forecasts by 2.3% and 1.5%, respectively. The real boost came from a surge in asset-based fees and recurring subscriptions, powered by growing demand for market cap-weighted index products and ETFs tied to MSCI equity indexes.
Capital expenditure stood at $27.3 million, while net cash from operations spiked 19.7% to $349.2 million, reflecting higher cash collections from clients. Its free cash flow (FCF) climbed 21.3% annually to close the quarter at $321.9 million. Plus, dividends of approximately $126.6 million were paid to shareholders in Q2.
Looking ahead, MSCI forecasts fiscal 2024 capex between $95 million and $105 million, with net cash from operations expected between $1.33 billion and $1.38 billion, and FCF projected between $1.22 billion and $1.28 billion.
Analysts tracking MSCI expect the company’s profit to grow 9.4% to $14.79 per share in fiscal 2024, and then jump another 13.1% to $16.72 per share in fiscal 2025.
MSCI stock has a consensus “Moderate Buy” rating overall. Among the 16 analysts covering the stock, six suggest a “Strong Buy,” two say it’s a “Moderate Buy,” seven advise a “Hold,” and one analyst recommends a “Strong Sell.”
The mean price target of $597.25 suggests a potential upside of just 1.6% from current levels. The Street-high target of $700, courtesy of Barclays, suggests the stock could rally as much as 19%.
Dividend Stock #3: Nasdaq
New York-based Nasdaq, Inc. (NDAQ), founded in 1971, is a tech titan in finance, boasting a market cap of $41.9 billion. Renowned as the world’s first electronic stock market, Nasdaq has revolutionized trading and clearing services across various asset classes.
The company operates through three segments. Its Capital Access Platforms business delivers real-time market data and analytics, empowering investors with insights. Financial Technology features innovative tools like Verafin for financial fraud detection and AxiomSL for robust risk management. The Market Services segment oversees Nasdaq’s legacy exchange operations.
With the Fed's interest rate cuts, Nasdaq stands poised to benefit from a surge in trading volumes and revenue, reinforcing its leadership in finance. This shift could also spark an uptick in IPO listings, as lower borrowing costs ignite fresh investment and economic activity.
Over the past 52 weeks, NDAQ has rallied 53.8%, including a recent sprint of 20.8% in just the past three months. The stock hit a new all-time high of $74.88 on Sept. 23.
At 26.56x forward earnings, NDAQ stock is priced right in line with peers like Intercontinental Exchange (ICE).
Nasdaq’s commitment to rewarding shareholders is evident, having steadily increased its dividend for 11 years. On Sept. 27, Nasdaq paid a quarterly dividend of $0.24 per share. The annualized dividend of $0.96 per share translates to a 1.32% forward dividend yield. Plus, with a 33.2% dividend payout ratio, the company is rewarding shareholders, while retaining ample earnings to drive future growth.
On July 25, NDAQ stock rallied 7.2% after a fiscal Q2 earnings report that exceeded expectations. Revenue soared 25% year-over-year to $1.16 billion, while adjusted EPS dipped slightly to $0.69, beating projections by 7.8%.
The company’s $10.5 billion acquisition of Adenza in 2023 transformed its fintech segment into a fraud-fighting and regulatory powerhouse, resulting in a staggering 79% revenue increase - or 16% without Adenza. This impressive growth far outpaced Nasdaq's mid-term forecast of 10% to 14%, proving its strategy is spot-on.
Additionally, Nasdaq celebrated its 42nd consecutive quarter as the go-to exchange for U.S. IPOs, achieving a 72% win rate with 31 companies raising over $3 billion. With $460 million in operating cash flow and a robust $440 million in cash and equivalents as of June 30, Nasdaq is well-positioned to continue its success and advance its deleveraging plan.
Analysts tracking Nasdaq project the company’s profit to dip 2.5% year over year to $2.75 per share in fiscal 2024, before recovering to $3.10 in fiscal 2025.
NDAQ has a consensus “Moderate Buy” rating overall. Of the 18 analysts in coverage, eight recommend a “Strong Buy,” three suggest a “Moderate Buy,” and the remaining seven have a “Hold.”
The average analyst price target for NDAQ is $76.50, indicating a potential upside of 5.2%. The Street-high target price of $90, set by Bank of America, implies a 23.8% upside potential.
On the date of publication, Sristi Suman Jayaswal did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
