CME Group: Dividend Growth Plus Optionality

Seeking AlphaClosed End FundsCME Group: Dividend Growth Plus OptionalityDec. 23, 2020 11:45 AM ET|| About: CME Group Inc. (CME), Includes: ICE, NDAQby: Closed End Fund TrackerClosed End Fund Tracker CEFs, Dividend Growth Investing, Dividend Investing, portfolio strategyInterval Fund Tracker.cls-1{fill:#024999;}Summary2020 has demonstrated the antifragility of CME’s business model. Although it experienced record setting trading volume throughout the year, its shares are down slightly year to date.
Although a lot of investors are focused on the weak volume in interest rate futures, the overall busines mix is well positioned for the future.
A commodities bull market would drive higher overall volume, and higher revenue per contract traded.
CME Group currently yields 1.9%, and it has a long history of growing dividends.
CME combines dividend growth with optionality, making it a great holding for long term investors.
It's always better to be the owner of a casino than a person playing at one. Exchange businesses are the prime example of the power of this type of business model. CME Group (CME) has a dominant position in several key exchange traded derivatives markets. It consistently generates operating margins above 50%.
The vast majority of CME's revenue comes from transaction fees on trading. It also generates sales from clearing & settling, and the sale of market data. However these ancillary businesses are ultimately driven by trading activity. This chart shows the mix of revenue sources in the most recent quarter:

Source: Earnings Presentation
During the beginning of the Covid-19 outbreak, we saw how CME's business thrives on uncertainty and volatility. February and March trading volumes were at record highs, drastically above the same months in 2019 and 2018. Indeed, CME is antifragile.
Source: CME Group Volume Reports, Author's Calculations
Although the absurd growth of February and March didn't continue throughout the full... Read more