Dividend Increase: CBOE 2018

CBOE Holdings (CBOE) is the holding company for the Chicago Board of Options Exchange, the largest domestic options exchange. CBOE announced an 14.81% increase to their quarterly dividend, bring the new amount to $0.31 per share from the prior $0.25. This marks 8 years of continuous increases to their dividend with the occasional special dividend thrown in the mix, since going public in mid 2010. Reflecting the new payout, that brings the yield on CBOE to 1.20%. Not the highest yielder in my portfolio, but I like the potential long term continued growth of that dividend (provided they don’t get bought out).

I’ve been a big fan of specialty exchanges. This is my exposure to financials as an alternative to exposure in the big banks which have lower margins, highly leverage balance sheets, and are subject to the Fed stress test. Since the turn of the century, we’ve had quite a few become publicly traded (CBOT, NYMEX, CME, CBOE). I have been an owner of all of them shortly after their IPO. The interesting thing to look at when looking at those 4 exchanges, only 2 of them still exist under their own control. CME years ago purchased both the NYMEX and CBOT. I believe it is just a matter of time before the CBOE is also under the control of the CME. To me, it just makes sense from a product line up, operationally, and geographic standpoint. Granted, I’ve believed this for almost a decade, and CBOE would be a lot pricier to takeover today.

Let’s take a quick look at some numbers on CBOE:

Market Cap: $11.56 Billion

P/E Ratio: 22.70

Beta: 0.67

Profit Margin: 19.41%

Total Cash: $271.8 Million

Total Debt: 1.21 Billion

Payout Ratio: 23.23%

Since last looking at CBOE, they have debt on their balance sheet. However their PE has dropped and also the cash on the books has almost tripled and the dividend payout ratio has even decreased. This company has plenty of room to continue to grow it’s dividend around the 10% level for years to come.

Until that takeover happens, I will sit on CBOE, collect a nominal yield that has plenty of room to grow, and take its market beating performance.

Let’s take a look at that dividend I keep talking about:

As you can see, the short dividend history shows a dividend growth rate of 15.34% on average. I believe in the neighborhood of about 10% is a good safe rate of growth to expect on the dividend (3 cents per year), meaning your dividend income from this holding should double in roughly 7 years. If we look at the total annual dividend income received annually, that averages out to growing at 28.11% per year. Even backing out the outliers from that average, we get 15% per year.

But what about those special dividends you mention?

Well, shareholders have received 2 special dividends in the 9 years of being publicly traded. But taking that into account we see:

Suddenly, the average annual dividend payments received jumps to 39.02% on average. The special dividends are a rare occurrence, but I did want you to be aware of them. Especially, in the case of CME special dividends tend to happen pretty regularly.

The Value of Investing $10,000 Long Term

On 6/15/2010 CBOE started trading at $32.80. If you invested $10,000 shares, you would have purchased 304 shares rounded down. Based on the closing price from 9/10/2018 of $103.41, you would have a current value of $31,436.64. This is good for a return of 214.36%.

When we look at the dividend generated from the stock, you would have received an additional $2404.64 in dividends during the time. The dividends received is 24.04% of your initial $10,000 investment. When we look at the total return of the stock factoring in the dividends, we get a total return of 238.41% in under a 10 year period. Not too shabby.

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