Image via Matt Griffin/Flickr CC
CME Group (CME) owns and operates exchanges where options, futures and derivatives are traded. The company’s namesake is the Chicago Mercantile Exchange, or “the Merc,” says Chloe Lutts Jensen, editor of Cabot Dividend Investor.
In 2007, the CME merged with the Chicago Board of Trade, or CBOT, the primary options exchange. One year later, CME consolidated its control of commodity futures trading by acquiring the New York Mercantile and Commodity Exchanges (NYMEX and COMEX).
And in 2010, CME Group bought the Dow Jones Indexes, acquiring control of the Dow Industrials. The world’s largest derivative exchange, the CME offers contracts based on interest rates, stocks, currencies, commodity prices and more.
In other words, a large percentage of the financial activity you read about on any given day — from options trades to changes in interest rate expectations to moves in oil price futures — occurs on one of CME’s 24-hour exchanges.
Commodity futures were originally designed to allow commodity producers like farmers and miners to hedge against price changes by transferring unwanted price risk to speculators. Today, futures contracts are still widely used for hedging in many industries. For example, most airlines use hedges to limit their exposure to changes in fuel prices.
But futures—and similar derivative products—have sprung up in lots of new areas as well. And derivatives are now also widely used purely as financial instruments, mostly by institutional investors.
This steady expansion of the derivatives market has fueled steady growth at CME Group. And CME continues to introduce new types of derivatives regularly. At the end of 2016, the company announced that is it working on a blockchain-based gold trading platform.
CME Group pays regular quarterly dividends of 66 cents, for a current yield of just about 2.0%. However, the company also distributes excess cash as a special dividend at the end of each year. Last year’s special dividend of $3.25 more than doubled the stock’s annual yield.
CME has paid these special dividends in each of the last five years. The company has also increased its regular dividend for six years in a row.
CME trades at a current P/E of 27 and a forward P/E of 25. I’ll add CME to the Dividend Growth Tier of our portfolio. Investors interested in steady dividend growth, capital gains and special dividends can do the same.
Chloe Lutts Jensen is editor of the Cabot Dividend Investor.
Subscribe to Cabot Dividend Investor here…
About MoneyShow.com: Founded in 1981, MoneyShow is a privately held financial media company headquartered in Sarasota, Florida. As a global network of investing and trading education, MoneyShow presents an extensive agenda of live and online events that attract over 75,000 investors, traders and financial advisors around the world.
Trending Now
1
2
Read Next
Thought Leaders
Introducing the NEW Equities News: Transforming the world by investing in what matters most
Paula DeLaurentis
Mar 15, 2024
Economic
An opportunity for women in the clean-energy transition
Green Money
Mar 12, 2024
Economic
Making diversity in venture-capital funding a priority
Yinka Faleti
Mar 11, 2024
Environment
E-bike incentives are a costly way to cut carbon emissions, but they also promote health
The Conversation
Mar 7, 2024
3 dividend-paying health-care stocks that top analysts recommend
Benzinga
Mar 7, 2024
Economic
The true cost of food is far higher than what you spend at the grocery checkout
The Conversation
Mar 6, 2024
The Latest
Thought Leaders
Introducing the NEW Equities News: Transforming the world by investing in what matters most
Mar 15, 2024
Economic
An opportunity for women in the clean-energy transition
Mar 12, 2024
Economic
Making diversity in venture-capital funding a priority
Mar 11, 2024
Environment
E-bike incentives are a costly way to cut carbon emissions, but they also promote health
Mar 7, 2024