Nasdaq, Inc.. (NASDAQ:NDAQ) is a $23.3 billion market capitalization exchange and data services company that is a free cash flow (FCF) powerhouse.
So much so that it recently increased its dividend by 11% to $2.40 on April 20. This makes NDAQ stock a unique game in the midst of a stock market crash.
You would think that stocks on a major exchange like the Nasdaq would be worthless in a stock market crash like the one of the last three or four months.
But transaction volume isn’t its only source of revenue, as data and analytics make up about 65% of its net revenue after transaction-related expenses. It is much less volatile and more recurring than trading income.
In fact, last quarter it generated $570 million in FCF based on its cash flow statement on page 5 of its Q1 10-Q filing. That was more than enough to pay its $89 million in quarterly dividends. The new dividend will cost no more than about $99 million.
It could be significantly lower given that the Nasdaq is also buying back its shares with its additional FCF. For example, last quarter he spent $142 on stock buybacks. This automatically increases the dividend per share over time as the number of shares decreases.
Where does that leave investors in NDAQ stocks
As of May 13, NDAQ stock has a dividend yield of 1.66% (i.e. a price of $2.40/$147.60 on May 13). That’s slightly higher than its 1.61% average over the past 5 years, according to Morningstar. This implies that NDAQ stock is worth $149.06 (i.e. $2.40/0.0161 = 149.06), or 4.77% more.
Moreover, over the past 5 years, its average forward price/earnings multiple has been 20.7x. Today, according to Refinitiv (Yahoo! Finance) its forward P/E is 18.4x. This implies that the NDAQ could be worth 12.5% more (ie 20.7x/18.4x-1 = 12.5%).
Thus, between these two measures, NDAQ stock is worth at least 6.6% more, or $151.57 per share. Additionally, if the Nasdaq continues to repurchase its shares, NDAQ stock could rise significantly.
As of the date of publication, Mark Hake did not hold (either directly or indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.