2023-09-27 09:43:58 ET
Summary
- FactSet Research Systems Inc. has a 23-year track record of increasing its dividend, making it a reputable and reliable dividend payer.
- The company's low payout ratio and moderate dividend yield indicate that its dividend is sustainable and has potential for growth.
- FactSet's stable financial position, strong return on equity, and investment in innovation support its long-term dividend growth.
- Based on the company’s reputable dividend history backed with solid growth levers, I recommend the company to dividend-oriented investors seeking a reliable dividend payer with the potential to grow in the future.
Investment Thesis
FactSet Research Systems Inc. ( FDS ) is a reputable dividend payer with a 23-year track record of increasing its dividend, demonstrating its commitment to rewarding shareholders and confidence in earnings growth. On evaluating its dividend policy, I find it very sustainable with potential future growth.
With the company’s strong financial strength , I believe the company’s dividend is very safe, and this further gives me confidence that this company is a good dividend choice for investors. Its investment in innovation and growth initiatives provides safe havens for the company’s long-term financial health, which bodes well for its long-term dividend health and sustainability. Given this background, I recommend this company to dividend-oriented investors seeking a stable and reliable dividend income with potential growth.
Dividend: Attractive, Reputable, And Sustainable, With Growth Potential
I’ve been following FDS’s dividend for a while and am impressed. Here is my analysis and opinion on the company’s dividend. FDS has increased its dividend for the past 23 years in a row, compared to the industry median of two years.
Dividend Channel
Furthermore, it has paid dividends for 23 straight years, compared to the industry average of 10 years. In my opinion, this makes the company a reputable dividend payer and a reliable income generator for investors.
Furthermore, this consistency, in my opinion, demonstrates its dedication to rewarding its shareholders as well as its confidence in its earnings growth.
The company has a low dividend payout ratio of 32.56% based on trailing-year earnings, indicating that it keeps a big percentage of its earnings for reinvestment and growth and that it has ample ability to raise its dividend in the future. The low payout ratio further emphasizes how sustainable the dividend is, making it incredibly secure. It has a moderate dividend yield of 0.92%, which is better than that of the S&P 500 index’s average yield of 0.86% but lower than the chemical industry’s average yield of 1.67%. This, in turn, leads me to believe that FDS is not overpaying its dividend and that the company has room to grow both in terms of market value and dividend payments.
In conclusion, the company’s dividend is attractive because it has a yield of 0.92%, which is higher than the S&P 500 average of 0.86%. In addition, the company’s long history of dividend growth and consecutive payments underscores its reputation and reliability to investors. Again, I find the dividend very sustainable, guided by the low payout, which is well covered by earnings. On the other hand, the higher retained earnings make me believe that the company’s dividend is in a solid growth trajectory because the earnings realized from the reinvested earnings will translate to improved EPS.
Levers For Long-Term Dividend Growth
In the light of the above attractive dividend policy, it is only convincing if there are robust long-term levers to support this dividend growth. The company’s stable financial position and investment in innovation bode well for FDS's long-term dividend growth.
FDS has a great financial performance and a competitive market position. In the third quarter of 2023, revenue climbed 14.3% year on year to $1.6 billion, while adjusted earnings per share increased 19.8% year on year to $3.04. In addition, the company has a strong return on equity of 28.9%, indicating its efficiency and profitability. This strong third-quarter performance matches the company’s solid financial success over the preceding couple of years, as illustrated below.
The company provides integrated financial information and analytical solutions for the global investing community, and it serves over 150,000 customers from over 6,400 client firms globally; this diverse client base, in my opinion, speaks well for the company’s future good financial success. FDS has greater customer satisfaction, which I feel bodes well for the company’s future financial performance and a wide and large customer base. It has a client retention percentage of more than 90%.
Another lever is the company’s investment in innovation. FDS invests in innovation and expansion activities to improve product offerings, broaden regional reach, and diversify revenue streams. The company invests roughly 10% of its revenue in R&D and continually develops new products and solutions to satisfy the changing needs of its customers. For example, the company launched FactSet Data Exploration , a cloud-based data analysis tool enabling customers to access and explore alternate data sets without coding.
I believe this innovative culture will go a long way in maintaining customer satisfaction through meeting the dynamic customer needs. High customer satisfaction translates to customer loyalty, which translates to stable revenue generation. In a nutshell, the company’s dividend is supported by a strong financial strength, which will be sustained in the long run through innovation and customer loyalty.
Risks
Although I am upbeat about the dividend, this does not mean the company is without risks or challenges. Some of the potential risks facing FDS dividends are:
Competitive pressure : The industry is competitive and dynamic , with dynamic client demands, technical advances, and market conditions. FDS competes with Bloomberg, Thomson Reuters, S&P Global, and Morningstar. These competitors may have more financial resources, market share, product diversity, and R&D than them. They may also provide cheaper, better, or greener solutions than them. The company must spend on innovation and expansion to maintain its market position and reputation. Its profitability and cash flow may suffer if its operational costs and capital expenditures rise in a bid to match competition, resulting in unsustainable dividend.
Regulatory pressure: The company must also follow regulations and standards that may affect operations and costs. The corporation must obey the data privacy and security rules of the countries where it operates or sells its products, such as the EU’s GDPR . As a result, it may be vulnerable to data breaches or cyber-attacks, jeopardizing its data integrity and consumer trust. Such incidents may result in legal action, fines, penalties, reputational harm, or customer loss for the organization. This could lower the company’s revenue and earnings, affecting its dividend payout ratio and growth rate.
My Opinion On Investing
FDS is a solid dividend company, providing investors with income and growth prospects. The company’s dividend is stable and growing; it has a low payout ratio, a modest yield, solid financial performance, a competitive position, and an innovative approach. Given these variables, I expect that the company will continue to raise its dividend in the future as it generates higher earnings and cash flow from its diverse products to a large and loyal client base. As a result, I recommend the company to dividend-oriented investors looking for a consistent income distributor with future growth potential.
For further details see:
FactSet Research Systems: A Prudent Dividend Choice