It’s no surprise that Microsoft Corp. is looking to get in on the London Stock Exchange. After all, it is Europe’s leading stock exchange. But what does this mean for Key stock Thomson Reuters? It means a whopping US$1 billion of proceeds, to be precise.
Thomson Reuters Corp. (TSX—TRI; NYSE—TRI)
Firm sells its shares in the London Stock Exchange
Thomson Reuters and New York-based Blackstone, who both control the London Stock Exchange Group plc, have agreed to sell shares to Microsoft. The proceeds from this transaction will be used in many ways, with the primary focus being reinvestment
At the head of the list is Thomson Reuters’ Two-Year Change Program. This initiative was announced in February 2021 and plans to transform the company into an operating content-driven technology company. The company has reported that it is largely complete.
Thomson Reuters also plans to reward its shareholders with part of the proceeds. The company has been increasing its regular dividend for 29 consecutive years, and may be looking to pay a special one-time extra dividend.
In addition, Thomson Reuters may buy back more of its shares. While this can help increase earnings per share, companies now face new fees for share repurchases. This fee may convince the company to find alternative uses for the cash.
Microsoft’s investment in the London Stock Exchange is expected to pay off over time. The company will be able to add to its income stream, especially in Europe.
As for Thomson Reuters, the company remains a ‘dividend aristocrat’. This refers to companies that have increased their dividends for at least five years in a row. It pays to buy dividend aristocrats, as dividend income can grow faster than inflation.
Thomson Reuters is currently rated “very conservative” due to its large asset size. The high share price gives the dividend a modest yield of 1.5 per cent, and the stock is valued at 37.3 times earnings.
Overall, while Microsoft’s investment in the London Stock Exchange looks promising, Thomson Reuters remains a “hold”.
This is an edited version of an article that was originally published for subscribers in the February 10, 2023 issue of The Investment Reporter. You can profit from the award-winning advice subscribers receive regularly in The Investment Reporter.
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The Investment Reporter •4/6/23 •