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All things media took a real beating last week. Nearly all the major media companies tumbled 10% or more in just a few days.
Viacom (NASDAQ: VIAB) felt the most pain, with its stock off more than 20%. It’s now down 35% over the last three months. Yet the likes of Time Warner Inc. (NYSE: TWX), Twenty-First Century Fox (NASDAQ: FOXA), AMC Networks (NASDAQ: AMCX) and Starz (NASDAQ: STRZA) were all shunned by the market as well.
The big fear is that pay-TV subscribers are dwindling, which was unearthed by a string of poor media company earnings results. Meaning, more people are “cutting the cord.”
Basically, the market decided in one week that the cable bundle is completely falling apart. The idea that pay-TV is going away has been around for nearly a decade, however. The industry and certain forward-looking executives are well aware of the challenges.
Granted, some stocks deserved a nice haircut, but some of the selling may have been overdone.
Is now the time to pick up some of these major media companies for cheap? It certainly appears that way, as a number of media dividends are now at all-time high yields.
No. 1 Media Dividend Stock to Buy: Viacom
Viacom is enticingly cheap right now. It’s trading at 7 times next year’s earnings estimates and is also offering the highest dividend yield, by a long shot, in the media space. Its dividend yield is up to 3.6% after the selloff – the highest it has ever been. The other key is that its return on invested capital is head and shoulders above other media players, coming in at a robust 18%.
Viacom’s stock was hit because of its earnings announcement, but its strong presence in cable TV won’t go away overnight. It owns networks like BET, Nickelodeon and MTV. Then there’s its movie presence through its Paramount Pictures subsidiary.
The key asset, though, remains Nickelodeon. It generates well over third of the company’s operating income and is a leader in the children’s TV space.
No. 2 Media Dividend Stock to Buy: The Walt Disney Co.
Disney (NYSE: DIS) is also offering an all-time high dividend yield of 1.7%. This media conglomerate was down over 10% last week.
Despite the cord-cutting worries, there’s still a lot of value in its ESPN and ABC networks. But there’s also a lot of core value in the various Disney-branded businesses – which include films and parks. The upcoming rollout of the “Star Wars” franchise will be a strong positive catalyst, and not just from a film perspective, but also a consumer products and merchandising one.
The dividend, in this case, is supported by various revenue streams. Disney will work out the kinks with offering EPSN as a standalone product, but in the meantime look for new parks to also be revenue drivers. One resort to keep an eye out for is Disneyland Shanghai.
No. 3 Media Dividend Stock to Buy: Twenty-First Century Fox
Then there’s Twenty-First Century Fox, which is the recent target of activist hedge fund ValueAct Capital. What’s interesting, besides the recent 12% fall in the stock price, is that it is down 22% year-to-date and is trading at prices below where Jeff Ubben’s ValueAct bought into the stock.
And its 1% dividend doesn’t sound like much, but again, you’re getting in when it’s at multi-year highs – all thanks to the hard selloff in media.
The beauty of Twenty-First Century Fox is that it’s still the leader among major cable operators given its strong international presence, with various cable networks in China and Europe. It also has a studio segment that produces nearly three-quarters of all its prime-time content.
Stock selloffs happen often. Yet, you have to make sure these companies aren’t cheap for a reason. Panics and overreactions are great buying opportunities for the right stocks, and it’s a big bonus when dividend yields are near all-time highs. That’s certainly the case for the three stocks above.
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