Corus Entertainment Inc.: Do You Dare Go Near This 14% Yield?

Management at Corus Entertainment Inc. (TSX:CJR.B) spun the company’s first-quarter results in the most positive light, but its 14% yield remains in jeopardy. Find out what to expect going forward.

| More on:
The Motley Fool

Management at Corus Entertainment Inc. (TSX:CJR.B) spun the company’s first-quarter results in the most positive light, trying to reassure investors that its 14% dividend yield was still safe.

The company was quick to point to free cash flow of $83.2 million for the quarter, up from $33.9 million a year ago, as evidence that it still has the financial flexibility to maintain its 118% payout and, on top of that, pay down its already large debt balance that currently sits at greater than $2 billion.

Media is a challenging environment today

It’s a fight that has been going on for some time now at Corus — trying to quell the investment community’s fears about the future of its television and radio businesses.

Part of the battle for Corus in recent years has been trying to stave off declines in advertising revenues, as millennials and younger households continue to adopt a “cord-cutting” philosophy and a shift in consuming their entertainment through online avenues like Netflix, Inc. (NASDAQ:NFLX) and apps like Spotify, which is currently preparing its own initial public offering (IPO).

Some might say that the cliché “desperate times call for desperate measures” applies to Corus’s 2016 acquisition of Shaw Media for $2.65 billion.

While the deal did help offset declines in the company’s core business, it also saw the shareholder’s take on an additional $1.4 billion in debt and their ownership significantly diluted.

And because of that dilution, the company’s dividend obligations are only becoming more burdensome to deal with.

Corus’s dividend payments have increased from $76 million prior to the Shaw deal to just shy of $200 million today after it issued an additional 110 million shares between 2015 and 2016.

First-quarter results were a tough pill to swallow

Now with the Shaw Media acquisition one year removed, when Corus Entertainment reported its first-quarter results, it was difficult not to notice that the company’s core business resumed its decline.

Overall, revenues were down 2% in the quarter, largely driven by declines in the company’s television business, which includes the Shaw Media assets acquired in 2016.

And while radio used to be an integral part of Corus operations, in Q1 radio accounted for less than 10% of the company’s profits and sales.

Keep fighting the good fight

But give them credit; management and the board of directors at Corus aren’t going down without a fight.

For 2018, the plan is to pay down some of the debt that was acquired from the Shaw Media purchase, but looking ahead past the current year, Corus has plans to continue its accumulation of content assets.

It will be interesting to see if this strategy will include discussions with DHX MEDIA COM VTG ORD (TSX:DHX.B)(NASDAQ:DHXM), which announced in 2017 it was looking for a strategic partner.

Bottom line

There’s no question that Corus faces challenges as things “shake out” in the traditional media landscape.

But at the same time, there’s also no one suggesting that content is going the way of the dinosaur; in fact, many are suggesting just the opposite — that the outlook for content assets has never been more “rich.”

Corus’s strategy to be aggressive in acquiring content today may pay dividends — theoretically speaking — for the company in future years, but the safety of the company’s current dividend remains another story altogether.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Jason Phillips has no position in any of the stocks mentioned. David Gardner owns shares of Netflix. Tom Gardner owns shares of Netflix. The Motley Fool owns shares of Netflix.

More on Dividend Stocks

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

edit Woman in skates works on laptop
Dividend Stocks

3 No-Brainer Stocks to Buy Under $30

These three stocks all offer a huge deal for investors looking for dividends, as well as growth that will last.

Read more »

You Should Know This
Dividend Stocks

How to Convert a $300 Monthly Investment Into $338 in Monthly Income

If you want a certain amount in monthly passive income, invest a similar amount today and leave the rest to…

Read more »

Increasing yield
Dividend Stocks

3 Income Stocks With Big Yields to Consider in April 2024

If you haven’t yet made your March investments, here are three income stocks to buy the dip and lock in…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

RRSP Investors: Don’t Miss Out on This Contribution Hack!

This hack has so many benefits for you -- not just when you put it in your RRSP but for…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

Passive Income: 2 Safe Dividend Stocks to Own for the Next 10 Years

Dividend stocks such as Manulife and Fortis can help you generate a stable and recurring passive-income stream.

Read more »

Young woman sat at laptop by a window
Dividend Stocks

3 Dividend Stocks Everyone Should Own for the Long Haul

For investors looking for top-tier dividend stocks to buy and hold for the long term, here are three of my…

Read more »