News Corp., CBS Corp. and Viacom Inc. are weighing dividend increases or share buybacks as an advertising rebound spurs cash flow, after media companies cut back during the U.S. recession.
CBS may boost its quarterly dividend 60 percent to 8 cents a share this year and Viacom may initiate a 25-cent payout as soon as August, according to forecasts based on data compiled by Bloomberg. News Corp. is projected to raise its twice-a-year dividend 20 percent to 9 cents.
A rebounding ad market fuels the optimism, led by renewed spending by carmakers. Media companies cut dividends 33 percent last year from 2008, according to data compiled by Bloomberg, and halted buybacks to pay down debt and guard against slumping ad sales.
“Stay tuned,” CBS Chief Executive Officer Leslie Moonves said when asked about returning cash to investors on a May 5 conference call. “We feel really good about our balance sheet and really good about our cash position.”
The Bloomberg dividend forecasts are based on options prices, dividend history, statements from management and comparisons with peers, among other criteria.
CBS, owner of the most-watched U.S. broadcast network, will address dividends and share buybacks in a “few quarters,” said Moonves, 60.
News Corp., owner of the Wall Street Journal, and MTV parent Viacom may increase payouts to investors by August, executives said after reporting earnings.
“Investors in the media world would continue to prefer a return of capital,” Anthony DiClemente, a New York-based analyst at Barclays Capital, said in an interview.
Since April, News Corp., Viacom and Time Warner Inc. each reported quarterly profit that beat analysts’ estimates, citing a strengthening economy and renewed demand for TV and print ads.
“If advertising wasn’t coming through then they’d be sitting on, hoarding, their cash,” Alan Gould, a New York-based analyst with Soleil Securities, said in an interview. “It looked like, a year ago March, that no one was going to advertise again.”
News Corp. is evaluating uses of its cash, including share repurchases, higher dividends, debt repayment and investments, Chairman and CEO Rupert Murdoch said on a May 4 call. He said he plans to take action within three months.
“We have not done this in the last year because we have been nervous,” Murdoch said. “Now there is a growing air of confidence, so we’ll see.”
Use of Cash
News Corp., which ended the quarter with $8.18 billion in cash and equivalents versus $3.24 billion two years ago, hasn’t bought back shares since June 2008, according to Bloomberg data. The company raised its dividend in February.
Investors have prodded Murdoch and other media executives to increase share repurchases for some time.
“If you think it’s such a good buy, you should be telling people to buy shares,” Murdoch, 79, responded in August 2008, when an analyst asked about buyback plans.
“Rupert has historically preferred to grow the company as opposed to shrink the equity,” said Soleil’s Gould, who recommends holding the shares. “I think you’ll see some sort of an increase in the dividend and probably a strategic acquisition.”
Benjamin Stretch, an analyst for Macquarie Capital USA Inc., said in a May 5 note that a buyback is the more likely scenario.
Past attempts to prop up stock prices with debt-funded buybacks left some media companies saddled with higher borrowing costs, which proved toxic when they tried to pay off loans amid recession-induced credit-rating downgrades.
Many also spent more to buy back shares in the five years prior to the recession than the stocks are currently worth, Gould said.
In the three years following its January 2006 split from Viacom, CBS lost 66 percent even as it raised its quarterly dividend five times, to 27 cents from 16 cents. The payout was chopped by 81 percent in February 2009.
CBS rose $1.13, or 8 percent, to $15.34 at 4 p.m. in New York Stock Exchange composite trading. The shares have increased 79 percent in the past year. Viacom gained $1.19, or 3.7 percent, to $33.45 and had increased 54 percent. News Corp., up 52 percent in the past 12 months, rose 99 cents, or 7.2 percent, to $14.66 in Nasdaq Stock Market trading.
CBS has paid down $835 million in debt this year, and profit margins will continue to rise in 2011, Chief Financial Officer Joe Ianniello said on last week’s call. The company reported $872.7 million of cash and near-cash as of March 31, before paying down $414.6 million of debt in April. Moonves said he’s not looking for major acquisitions.
Viacom, the owner of Comedy Central, VH1 and MTV, will consider buying back stock or starting a dividend over the next three months, CEO Philippe Dauman said on an April 29 call. The company hasn’t repurchased shares since early last year.
Time Warner paid out $750 million in the first quarter through its higher dividend and increased buybacks. With $5.17 billion in cash, Chief Financial Officer John Martin said on a May 5 call that that New York-based owner of HBO and CNN has more than it needs and will keep looking for ways to use it.