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Global professional services firm Marsh & McLennan Companies, Inc. MMC recently announced a significant increase in its quarterly cash dividend. On Jul 10, 2024, its board of directors revealed a 15% hike in the quarterly cash dividend, raising it from 71 cents to 81.5 cents per share. The new dividend will be payable on Aug 15, 2024, to shareholders of record as of Jul 25.

This increase reflects the 14^th consecutive year of dividend increases and underscores the company’s commitment to returning capital to shareholders. It signals MMC’s confidence in its ongoing cash generation capabilities and future growth prospects.

For income-focused investors, the increased dividend provides a higher yield. But is this the right time to buy the stock?

Considering yesterday’s closing price of $214.87, MMC’s dividend yield is currently pegged at 1.5%, which is above the industry average of 1.1%. Shares of the company have gained 13.4% in the year-to-date period, outperforming the industry average of 10.7%. During this time, its peer, Aon plc AON, witnessed only 1.5% growth. Management at AON hiked its dividend by 10% this April to 67.5 cents per share.

YTD Price Performance

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Apart from dividends, MMC also takes part in share buybacks to boost shareholder value. It repurchased shares worth $300 million in the first quarter of 2024 alone. The company had roughly $2.9 billion left under its authorization at the first quarter-end. It has plans to deploy roughly $4.5 billion in capital in 2024 on dividends, buyouts and share buybacks.

Growth Ahead

Several factors are likely to support MMC’s growth, consequently boosting its shareholder value enhancement efforts.

MMC, with its prudent acquisitions and growing capabilities, is well-positioned to capitalize on the ongoing demand for risk management and consulting services. Its growing service offerings and geographic reach will drive revenue growth. The Zacks Consensus Estimate for current-year revenues and earnings per share is currently pegged at $24.3 billion and $8.68, respectively, implying an increase of 7% and 8.6% from the 2023 respective actuals.

Image Source: Zacks Investment Research

Image Source: Zacks Investment Research

Its Risk and Insurance Services segment, which operates through Marsh and Guy Carpenter, has consistently delivered strong performance over recent quarters. The segment accounted for 66% of the company's total first-quarter 2024 revenues. Recent acquisitions of independent entities in the domestic market have bolstered the Marsh McLennan Agency subsidiary, enhancing its client base and expertise in employee benefits, particularly for public sector clients.

These strategic moves position the company for sustained growth and robust cash generation. Notably, MMC generated $3.9 billion in free cash flow over the trailing 12-month period, underscoring its financial strength.

Factors to Keep an Eye on

Despite the above-mentioned positives, the MMC stock has its share of headwinds. It carries a substantial amount of debt, which could limit its financial flexibility and increase vulnerability to the high-interest rate environment. It exited the first quarter of 2024 with a long-term debt of $12.3 billion, up 3.9% from the 2023-end figure. Long-term debt to capital of 49.4% is above the industry average of 45.8%.

Also, Management expects interest expenses to be around $620 million in 2024, which indicates an increase of 7.3% from the 2023 levels. Its total expenses jumped 9.5%, 6%, 6.2% and 8.3% in 2021, 2022, 2023 and the first quarter of 2024, respectively. We expect the trend to continue in the coming days on high compensation and benefits.

The company’s growth strategy relies heavily on the successful integration and performance of newly acquired entities, which can be challenging sometimes and may not always deliver the expected benefits.

Based on the forward 12-month price/earnings ratio, MMC is currently trading at 23.76X, above its 22.74X five-year median and industry average of 18.92X. Its peer, Willis Towers Watson Public Limited Company WTW, is currently trading at 14.89X P/E ratio.

Final Thoughts

MMC continues to demonstrate strong financial performance and strategic growth, particularly through its Risk and Insurance Services segment and recent acquisitions. The company's consistent dividend increases reflect a commitment to returning value to shareholders. However, the premium valuation, debt burden and ongoing expense growth suggest a cautious approach.

While the long-term growth prospects remain firm, potential investors might find better short-term opportunities elsewhere. They should monitor the company’s developments closely for a more appropriate entry point. The stock’s Zacks Rank #3 (Hold) supports our thesis.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.