This Financial Stock Just Got a Huge Dividend Raise

One of the top gainers on the stock market Tuesday was MSCI (NYSE:MSCI), which jumped about 10% to over $608 per share following the release of its fourth-quarter and year-end earnings.

MSCI, which oversees the MSCI indexes and offers analytics, data, risk management and other tools for institutional investors, had a big quarter, posting revenue and earnings gains and raising its dividend.

Firing on all cylinders

MSCI was firing on all cylinders in the fourth quarter, aided by a strong couple of months for the stock markets in November and December. The firm’s operating revenue surged 20% year over year to $690 million, while its operating margin rose one basis point to a stellar 53.7%.

MSCI’s net income climbed 88% year over year to $403.4 million or $5.07 per share. The company’s results were aided by higher revenue and a one-time gain of $97.1 million related to its acquisition of the Burgiss Group, a data and analytics provider for private equity, last year. For the full year, MSCI’s net income was up 32% to $1.15 billion, or $14.39 per share.

MSCI saw revenue gains across the board in the fourth quarter. It generally makes money in two ways: through subscriptions from its products and tools and through fees related to its assets.

Overall, MSCI’s asset-based fees were up 15.9% to $145 million. Revenue from recurring subscriptions was up 16.8% to $505 million, while non-recurring subscriptions jumped 114% year over year to $40 million.

In the fourth quarter, new recurring subscriptions sales were up 1.9% to $92.2 million, while total net sales, including cancellations and non-recurring subscriptions, jumped 25% to $103.3 million.

This revenue streams in through four major business lines: indexes, analytics, ESG (environment, social and governance) and climate, and private assets. Of the four, the indexes segment is the largest, with $388 million in revenue, up 17.8% from the same quarter a year ago. Analytics is next at $165 million, up 10%, followed by ESG at $76 million, up 20%, and private assets, with $61 million in revenue, up 81%.

“Operationally, we completed our 10th consecutive year of double-digit subscription run-rate growth in Index, while achieving our highest-ever full-year retention rate in Analytics, along with our best quarter and full year on record for recurring sales in Equity Analytics,” said Chairman and CEO Henry Fernandez in the earnings release.

A good dividend stock

MSCI is an excellent dividend stock because of its high operating margins and its high free cash flow, which comes from steady flows from subscription income. In the fourth quarter, it had free cash flow of $367 million, up 24% year over year. For the full year, it had $1.145 billion in free cash flow, which is 12% higher than the previous year.

For fiscal 2024, MSCI projects free cash flow of $1.225 billion to $1.228 billion, a potential 7% increase. As a result, the firm was able to boost its quarterly dividend by about 16% to $1.60 per share for the first quarter. This will be the 10th straight year that MSCI has raised its dividend.  

For 2024, Fernandez said the company is committed to returning excess capital to shareholders through stock buybacks and dividends and is “committed to making organic investments and bolt-on acquisitions that add value.”

MSCI is a great company, but its fortunes will be somewhat tied to market fluctuations. After a great ending to a good year, the stock is trading at a pretty high valuation, with a price-to-earnings ratio of 46. With the markets not expected to be as strong in 2024, further upside could be limited in 2024, at least in the shorter term.