Viacom Inc., the owner of MTV Networks and the Paramount Pictures film studio, will start paying a dividend for the first time and buy back as much as $4 billion in stock as the advertising market recovers.
The quarterly dividend of 15 cents a share will be payable on July 1 to shareholders of record on June 21, Viacom said today in a statement. It’s the first time the company will pay a dividend to investors since Chairman Sumner Redstone split Viacom and CBS Corp. at the beginning of 2006.
Viacom Chief Executive Officer Philippe Dauman said on an April 29 conference call that Viacom would consider buying back stock or starting a dividend after profit beat analysts’ estimates and the ad market started to bounce back. Viacom, which also owns Comedy Central and VH1, hasn’t repurchased stock since suspending buybacks early last year amid the recession.
“With the cash flow Viacom is generating, they had to figure out a good way to spend it,” said Chris Marangi, an analyst at Gabelli & Co. in Rye, New York, who recommends buying Viacom shares. “The timing is right for this.”
Media companies are increasingly weighing dividend increases or buybacks as ad demand recovers, after cutting payouts last year by 33 percent from 2008, according to data compiled by Bloomberg. CBS, owner of the most-watched U.S. broadcast network, has said it will address returning cash to shareholders over the next few quarters. New York-based News Corp. is also evaluating uses of cash, Chairman Rupert Murdoch said May 4.
Viacom ended the first quarter with $358 million of cash and equivalents, up from $298 million at the end of the fourth quarter. The company’s first-quarter profit rose 38 percent, topping analysts’ estimates.
The dividend will cost about $270 million this year and $365 million per year after that, Dave Novosel, an analyst at Gimme Credit LLC in Chicago, said in a report today. Viacom may generate $1.5 billion in free cash flow in 2010, enabling it to “easily afford” the payout, he said. Viacom won’t spend more than its free cash flow on dividends and buybacks, Novosel said.
Viacom said it will begin repurchasing shares in the fourth quarter. JPMorgan Chase & Co. analyst Imran Khan said the media company may beat his 2011 earnings estimate of $3.02 a share by 5 percent if it spends $400 million in stock buybacks in the fourth quarter and $2 billion in 2011.
Viacom rose 61 cents, or 1.9 percent, to $33.16 at 4:02 p.m. in New York Stock Exchange composite trading. The shares have gained 12 percent this year. CBS gained 34 cents, or 2.6 percent, to $13.65.
CBS, also controlled by Redstone, chopped its dividend by 81 percent in February 2009. Prior to that, CBS had raised the payout five times to 27 cents after the separation from Viacom.