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4 Ways to Invest in Radio, Canada’s Forgotten Media

As I type this article, I’m listening to music.

Specifically, I have my iTunes library on shuffle. If I decide to go somewhere, I’ve got the same library downloaded to my iPod, which I can easily hook up to my car. And if I grow tired of that, my cable TV service offers commercial free music. If I wanted, I could even shell out a few bucks a month for satellite radio, or listen to one of the free music services online.

What does all this prove, besides I’m a little obsessed with music?

It all spells trouble for Canada’s radio industry. No longer do people have to put up with listening to commercials during their daily commute. It’s easy to connect an iPod to speakers for background noise at the office. There are many different choices for music consumers which didn’t exist just a decade ago.

And yet, the radio business refuses to die.

Corus Entertainment (TSX: CJR.B) owns 37 different radio stations across Canada, only absent in the maritimes. Its radio division generated more than $180 million in revenue in 2013, 4% less than 2012. This decline was still less than the television business, which fell 4.8% year over year.

Corus’s radio division still enjoys solid operating margins, coming in at approximately 30%. The television division has equally solid margins, but the fact remains that radio continues to be a good business.

The company pays out a solid dividend, coming in at a 4.5% yield. As radio continues to chug along, investors will continue to collect that generous dividend.

Rogers Communications (TSX: RCI.B)(NYSE: RCI) owns more than 50 different radio stations all across Canada, which generated more than $220 million in sales in 2013. Its brands include some of the largest radio stations in the country, including 680 News and 590 Sportsnet in Toronto, and the KISS and JACK FM brands across the country.

The nice thing about getting radio exposure through Rogers Communications is the diversification the company offers just in its media business. It owns television stations, magazines, and the Toronto Blue Jays. It also owns a chunk of the Toronto Maple Leafs and Raptors.

Rogers doesn’t separate radio results from the rest of its media division, but overall results were weaker in 2013 because of higher content acquisition costs, a higher payroll for the Blue Jays, and lower costs in 2012 because of the NHL lockout.

Still, Rogers pays a 4.3% dividend and is trading at near a 52-week low. It’s a good place to invest if you’re looking for Canadian media exposure.

BCE (TSX: BCE)(NYSE: BCE) is Canada’s largest radio company by revenue, owning more than 50 stations across the country and producing more than $250 million in sales in 2013. It focuses on acquiring the leaders in markets across the country, and owns many stations in medium sized cities across the country where there is less competition.

One advantage of owning stations across different platforms is the ability to recycle radio content on television networks and vise versa. BCE does this well, especially on their sports stations. TSN analysts are often heard on the company’s sports radio talk shows. Globe and Mail business reporters often appear on BNN. It’s a good way to keep costs down in today’s competitive media world.

Like Rogers, radio makes up just a small portion of BCE’s revenue. Radio is almost an afterthought at the company. This can be good or bad, depending on perspective.

Investors looking for a purely radio play are stuck with one Canadian company, Newfoundland Capital Corporation (TSX: NCC.A), which operates more than 80 radio stations across Canada under the Newcap brand.

Newcap’s strategy is to focus on markets overlooked by its larger competitors, opening up and buying radio stations in small cities across the country, in places where it’s likely to be the only radio station in town. Because of this, Newcap’s results are often better than its largest competitors.

Newcap is trading at about 9 times trailing earnings, is actually growing its revenues thanks to acquisitions, and it pays a 2.1% dividend. It continues to open radio stations in smaller markets across the country. Newcap’s $240 million market cap makes it a perfect target for a larger Canadian company looking to expand its operations into radio. Shaw Communications is a potential suitor.

Foolish bottom line

Radio isn’t about to go away soon. Yes, advertising on the medium has slumped a bit lately, but Canadians still value radio and still listen to it. Newcap is even opening new stations across the country. Radio deserves consideration for your portfolio.

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Fool contributor Nelson Smith owns preferred shares in Shaw Communications.

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