On Wednesday, leading U.S. futures trading exchange operator, CME Group Inc. (CME) announced a substantial dividend increment of 22% from the prior $1.15 per share, increasing the dividend payout ratio to 35% from 30%. The hiked quarterly cash dividend of $1.40 per share will be paid on March 25, 2011 to the shareholders of record as of March 10, 2011.
Over the last few quarters, CME has been posting strong trading volumes, which has also helped in strengthening its cash flow and capital position. Hence, CME is meticulously working to expand its operations and simultaneously return wealth to investors, thereby retaining market confidence. However, the company’s high long-term debt remains a cause for concern.
Last month, the company also prepaid a $421 million loan under the three-year credit and term loan agreement that was due in August 2011. This revolving facility was further replaced with a $1.0 billion multi-currency three-year revolving credit agreement that will expire in January 2014 and helped reduce interest costs by about $3 million.
Although such forms of credit facilities pressurize the financial leverage, it also aids CME in expanding through acquisitions and in reaching out to diverse markets. These efforts, however, warrant a back-up for any kind of contingencies. These eventualities include defaults from clearing house members and from money transfers, among others.
Enjoying a 98% share of the U.S. future trading market, CME is following industry trends and weighing options for inorganic expansion. Particularly, after last week’s announcement of the $10 billion merger deal between NYSE Euronext Inc. (NYX) and Deutsche Boerse (DBOEY.PK).
CME is reported to be desperately hunting for prospective options although it did not show interest in partnering with Nasdaq OMX Group Inc. (NDAQ) to counter-bid for NYSE or even acquire Nasdaq. However, CME could consider other operators like CBOE Holdings Inc. (CBOE), which is also seeking a buyer.
The sudden business restructuring in the stock exchange industry reflects the rapid need to respond to the changing dynamics of modern finance. These are primarily driven by the increased demand for greater international services and intense competition, which have led the traditional exchange companies to seek ways to attain scale and services.
However, we believe that uncertainty hovers around CME’s future course of action although the company’s efforts to promote, expand and cross-sell its core exchange-traded business through meaningful acquisitions, a strong portfolio along with its global presence will generate a decent growth in the long run.
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