What we think about CME Group (CME)
CME in Three Words: Efficient, Transactional, Shareholder-Friendly
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Background
The Chicago Butter and Egg Board was founded in 1898 as a way to sell futures contracts for butter and eggs.
The founders had a vision of creating a single meeting place where traders could buy or sell agricultural products of uniform consistency at agreed-upon prices and then ship them by the truckload anywhere in the country. It was acceptable and encouraged to set the prices upfront, then schedule deliveries for weeks or months in the future. The firm added the ability to trade several new products and eventually changed its name in 1919 to the “Chicago Mercantile Exchange”.
That same ethos still remains with CME Group today. The exchange has expanded beyond butter and eggs and now offers trading products in six different product lines: interest rates (50% of total trading volume), global equities (27%), energy (9%), agricultural commodities (8%), foreign exchange (4%), and precious metals (2%). Its largest customers are institutions who are interested in hedging their future risks. For example, say an institutional fund holds positions in several international companies. The upcoming earnings of those companies (as reported in US dollars) could be hurt if the US dollar strengthens against their local currencies. They might consider hedging this risk of falling equity prices by trading foreign exchange futures that would counteract those losses. The same concept applies for anything of value in the global economy, such as the price of oil, gold, or even Bitcoin.
CME Group also owns and operates its own clearinghouse, CME Clearing, which takes temporary ownership of each contract to ensure the transactions actually settle and go through.
CME generated $5 billion in total revenue during 2023, capturing a 60% operating cash flow margin.
Conviction Rating Changes
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Recent Company Updates
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February 5, 2025
CME just increased its quarterly dividend by 9% to $1.25 per share.
With shares currently trading hands at $243, this $5 annual payout represents a 2% regular dividend yield.
Coupled with CME's special dividend of $5.80 that it paid in January (which was +10% year-over-year), the stock now pays a combined $10.80 per share on an annual basis, which yields 4.4%.
December 6, 2024
"CME's Board declared the company's 2024 annual variable dividend, amounting to $5.80 per share. The dividend is payable January 16, 2025, to shareholders of record on December 27, 2024, and totals approximately $2.1 billion.
In addition, the Board authorized a share repurchase program of up to $3 billion of CME Group Class A common stock, subject to market conditions."
$5.80 per share amounts to a 2.4% yield. And the $3b repurchase is the equivalent of a 3.4% buyback yield.
More shareholder-friendly management from CME Group.