Should Corus Entertainment Inc. (TSX:CJR.B) Investors Brace Themselves for a Dividend Cut This Year?

Corus Entertainment Inc. (TSX:CJR.B) keeps getting cheaper by the day. Is the massive ~18% dividend safe? Or is a cut on the horizon?

| More on:

Corus Entertainment Inc. (TSX:CJR.B) stock has not been kind to contrarian investors who have attempted to catch it on the way down. At the time of writing, the stock is down over 75% from its 2014 high, where the stock consolidated right before falling off a massive cliff.

Shares of Corus plunged 60% before its dead-cat bounce which burned many deep-value investors hoping to lock in an artificially high yield along with a sharp rebound. That wasn’t at all that happened, though, as shares continued to free fall further into the abyss, shedding another ~55% from July 2017 to June 2018.

What’s the fate of the massive ~17.6%-yielding dividend?

Despite plunging over 75% from its high, Corus’s management team has still yet to trim the dividend, whose yield has swollen to an astounding 17.6%. I’ve noted in the past that the shareholder-friendly management team would only look at cutting its dividend if worse came to worse. With Corus’s recent asset sale being blocked by the Competition Bureau though, I think Corus may find it best to finally cut (or substantially reduce) its dividend in spite of its improved cash flow generation.

Corus has a hefty amount of debt on its balance sheet. The two French specialty channels, Historia and Series+, were supposed to raise approximately $200 million to alleviate the some of the financial pressure; however, since the deal is clearly not going to happen, Corus is going to need an alternative course of action; naturally, it’s likely going to be in the form of a hefty dividend reduction.

Queue the dividend reduction

If Corus were to announce a dividend cut (or reduction), I think the general public will breathe a sigh of relief, especially since most investors in the stock are aggressive contrarians looking to bottom-fish, not income investors who are in it for the yield. Most, if not all, income-oriented investors have jumped ship already, so if Corus announces a dividend cut in its next quarterly earnings report, I think Corus shares actually stand to rally, as management sheds light on how it’s planning to get the ship turned back in the right direction.

For now, one can only expect that debt reduction will remain the top priority, as $245 million is expected to be paid back in 2019. After that, I believe content creation will be a key area of investment that may bring about some relief to shares.

In this era, content remains king. Advertising revenues are expected to continue to be on the decline on a year-over-year basis, and with no hit “must-see” programs in the cards, it’s going to be tough to reverse the trend, as Canadians continue to cut the cord in favour of cheaper premium content available on various video streaming platforms.

Bottom line

At the time of writing, Corus shares trade at a 0.5 P/B, a 0.8 P/S and a 3.8 P/CF, all of which are substantially lower than the company’s five-year historical average multiples of 1.3, 1.9, and 7.8, respectively.

The stock is ridiculously cheap, especially on a P/FCF basis; however, I’d recommend investors sit on the sidelines while they wait for more promising commentary from management with regards to a turnaround. Corus is definitely a stock I’d rather buy on the way up (assuming a sound turnaround strategy is announced), not on the way down.

Stay hungry. Stay Foolish.

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 Joey Frenette has no position in any of the stocks mentioned.

More on Dividend Stocks

Dividend Stocks

1 Oversold Dividend Stock I’d Buy in December 2022

Here’s one of the best Canadian dividend stocks to buy in December that I find undervalued.

Read more »

Make a choice, path to success, sign
Dividend Stocks

Algonquin Power Stock: Time to Buy or Buyer Beware?

Algonquin Power stock has a massive 9.5% dividend yield. It looks appealing, but is it time to buy or beware?

Read more »

TFSA and coins
Dividend Stocks

2 Top TSX Stocks to Buy Now for TFSA Passive Income

Stocks with good dividend growth are now on sale for investors seeking passive income.

Read more »

Dividend Stocks

2 TSX Stocks to Buy in December for Passive Income

These two TSX dividend stocks are some of the best to buy today and can offer years of growing passive…

Read more »

Increasing yield
Dividend Stocks

2 High-Yield Dividend Stocks You Could Hold for Years

You can consider adding these two large-cap Canadian dividend stocks to your portfolio now to hold for the long term.

Read more »

Female hand holding piggy bank. Save money and financial investment
Dividend Stocks

How to Turn a $10,000 TFSA or RRSP Into $415,000 for Retirement

This investing strategy has made some patient investors quite rich.

Read more »

edit Business accounting concept, Business man using calculator with computer laptop, budget and loan paper in office.
Dividend Stocks

3 Essential Stocks I’d Buy No Matter the Price

These essential stocks aren't just good options right now; they're stable choices for decades for investors looking to set up…

Read more »

Growth from coins
Dividend Stocks

TFSA Investors: Buy and Forget This Top Oversold Dividend Stock

This dividend stock has seen shares collapse this year, with a poor year expected. But does that mean it's a…

Read more »