This financial stock just earned a huge dividend hike.
Among the biggest gainers in the stock market Tuesday were: MSCI Shares of (NYSE:MSCI) rose about 10% to more than $608 per share following the company’s fourth-quarter and year-end earnings release.
MSCI, which oversees MSCI indices and provides analytics, data, risk management and other tools for institutional investors, had a big quarter, with revenue and profit growth and a dividend hike.
Firing on all cylinders
MSCI had an explosive fourth quarter on all fronts, thanks to two strong months in the stock market in November and December. The company’s operating revenue increased 20% year over year to $690 million, and operating margin increased 1 basis point to 53.7%.
MSCI’s net income increased 88% year over year to $403.4 million, or $5.07 per share. The company’s results were driven by increased revenue and a $97.1 million one-time gain related to last year’s acquisition of Burgiss Group, a provider of data and analytics for private equity funds. For the full year, MSCI’s net income rose 32% to $1.15 billion, or $14.39 per share.
MSCI saw revenue increase across the board in the fourth quarter. They typically make money through subscriptions to products and tools, and through fees associated with their assets.
Overall, MSCI’s asset-based fees increased 15.9% to $145 million. Recurring subscription revenue increased 16.8% to $505 million, while non-recurring subscription revenue increased 114% year over year to $40 million.
New subscription revenue in the fourth quarter increased 1.9% to $92.2 million, and total net sales, including canceled and non-recurring subscriptions, increased 25% to $103.3 million.
This revenue flows through four main business lines: Indices, Analytics, Environmental, Social and Governance (ESG), Climate and Private Equity. Of the four segments, the Index segment had the largest revenue of $388 million, a 17.8% increase over the same period last year. Analytics increased 10% to $165 million, ESG increased 20% to $76 million, and private equity revenue increased 81% to $61 million.
“Operationally, we completed 10 consecutive years of double-digit subscription run rate growth in Index, achieved our highest ever annual retention rate in Analytics, and achieved our best quarterly and annual record for recurring sales in Equity. Analytics,” Chairman and CEO Henry Fernandez said on the earnings call.
good dividend stocks
MSCI is a good dividend stock due to its high operating margins and high free cash flow from consistent subscription income. In the fourth quarter, free cash flow was $367 million, a 24% increase compared to the same period last year. For the full year, free cash flow was $1.145 billion, up 12% from the previous year.
MSCI expects free cash flow to increase by potentially 7% to $1.225 billion to $1.228 billion in fiscal 2024. As a result, the company was able to increase its quarterly dividend by about 16% to $1.60 per share in the first quarter. This is the 10th consecutive year that MSCI has raised its dividend.
Fernández said the company is committed to returning excess capital to shareholders through share buybacks and dividends in 2024 and is “committed to organic investments and additional acquisitions that add value.”
MSCI is a great company, but its fate will depend somewhat on market fluctuations. After coming off a good year, the stock is trading at a fairly high valuation, with a P/E ratio of 46. Further upside may be limited in 2024 as the market is not expected to remain strong in 2024. At least in the short term.
