Media firms starting to pay dividends again

Companies rewarding investors as credit crunch dissipates

Years ago, most investors in media and entertainment stocks didn't dare even hope for dividends.

However, the shareholder payouts now have become an increasingly popular way for industry companies to reward investors, and with the worst of the credit crunch over, more dividend money has started to flow.

Case in point: the latest earnings season, which brought dividend increases from such sector heavyweights as Time Warner (up 13%) and News Corp. (up 25%) and a dividend launch by Time Warner Cable. Those followed a 40% dividend boost by cable giant Comcast late last year.

DirecTV also said recently that it would consider a dividend, and Wall Street is betting that exhibition powerhouse Regal could increase its payouts again this year as could other sector firms amid a lack of big M&A activity.

"Everyone is sitting on a pile of cash, and investors need yield given how low bonds and government notes are yielding," Sanford Bernstein analyst Michael Nathanson said.

Added David Joyce, analyst at Miller Tabak: "Paying increased dividends is a renewed requirement of large investors, who for the past two years were advocating that certain companies, like CBS, cut dividends in order to shore up balance sheets ahead of debt repayments in the face of extremely challenging and uncertain credit-market conditions."

Indeed, CBS -- which launched its dividend after its separation from faster-growing Viacom and kept boosting it for a while -- and Regal last year reduced the size of their dividends but kept the door open to a renewed ramp-up.

Although traditionally seen as a tool for mature businesses with little growth left in them, dividends also can attract new investors, including income funds, looking to hold a stock longer-term while enjoying regular payouts.

"It also takes some speculative fear out of companies who might be considered acquirers -- typically a negative for those stocks," Joyce said.

Plus, in a fast-changing media market, dividends are a show of confidence in the economy, a company's business and its ability to raise new financing, if needed.

Cable operators until recently had to spend all their cash on building out their networks and servicing high debt loads. But when Comcast boosted its dividend on the day it announced the NBC Universal acquisition, investors took it as a sign of management confidence that it can make the deal work and still have cash to give back.

Similarly, when TW Cable recently unveiled its dividend of 40 cents per share, Barrington Research analyst James Goss said investors will be happy. "This level of dividend payment offers what we feel is a very attractive yield and adds a new dimension to the investment story," he said.

Collins Stewart analyst Thomas Eagan predicted that the new TWC dividend will help "attract investors from telco stocks as well."

After this earnings season's dividend increases, some on the Street think more might be on the way.

Regal is widely expected to increase its shareholder returns over time after cutting its quarterly payout a year ago from 30 cents to 18 cents a share -- not because it faced debt problems but because it felt it needed to conserve cash amid the credit crunch.

"A dividend increase is likely within the next 12 months, given 2009 performance and 2010 expectations," Barclays Capital analysts George Hawkey and Anthony DiClemente wrote in a recent report. They estimated Regal could pay as much as $1 a share and still retain the flexibility to use its cash for additional purposes.

Despite the recent dividend news, most media and entertainment companies still have comparatively low dividend yields -- measured as dividend per share divided by stock price -- in the low single digits.

According to Bloomberg, using data from the trailing 12-month period, Regal's dividend yield stands at 4.8%, TW's at 3.3%, Comcast and Cablevision Systems at 1.8%, CBS at 1.5% and News Corp. at 0.8%.

Sports entertainment powerhouse World Wrestling Entertainment is an industry dividend-yield champ: Its 36 cents per share quarterly dividend amounts to a yield of 8.8%.
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