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Analyst Blog

Last week, MarketAxess Holdings Inc. (MKTX - Snapshot Report) announced the approval of a special cash dividend of $1.30 per share by its board of directors. This implies a dividend yield of 3.98%, based on the company’s closing share price of $32.69 as of Dec 10, 2012.

The special dividend will be paid on Dec 27, 2012 to shareholders of record as of Dec 14, 2012. MarketAxess expects a cash outlay of about $50 million for the dividend payment, considering the number of shares outstanding at present.

The company will use its cash-in-hand to pay the dividend. This will substantially reduce MarketAxess’ cash and cash equivalents, which stood at $150.1 million as of Sep 30, 2012. However, the company generated operating cash flow of $53.3 million during the first nine months of 2012, which is adequate to cover the expenditure for the special dividend.

The strong cash flows generated by MarketAxess have resulted in a sturdy balance sheet and abundant free cash. Consequently, the company strives to return its excess capital to shareholders regularly through dividends and share repurchases, apart from investing in new business.

In addition to this special dividend, MarketAxess paid a regular quarterly dividend of 11 cents per share last month, to shareholders of record as of Nov 12, 2012. Moreover, as a part of its capital management policy, the company spent $26.6 million for repurchasing 870,139 shares between October 2011 and September 2012 under a $35 million share repurchase program, authorized in October 2011.

MarketAxess carries a Zacks #2 Rank (Buy). We maintain a long-term ‘Neutral’ recommendation on the stock. Peer Deutsche Boerse AG also carries a Zacks #2 Rank.

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