Building My Dividend Portfolio: Meredith Corporation

Karin is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

This is part four of a ten-part series, which I will be publishing every week until the entire portfolio has been introduced. You can see Part One here, where I discussed my first addition, Abbott Laboratories, Part Two here, where I discussed PartnerRe Limited, Part Three here, where I discussed Enterprise Products Partners, and Part Four here, where I discussed Cracker Barrel Old Country Store.

I have been analyzing dividend companies for over six months. I am halfway through constructing a model portfolio of my own that I am presenting to the Motley Fool community, one company at a time. Each week, I am digging deeper into individual companies that are at the top of my consideration list.

I review the companies on seven different criteria: yield, number of years paying and raising dividends, 5-year Dividend Growth Rate (DGR), 5-year projected Earnings Growth Rate (EGR), total return for the past twelve months, PE and payout ratio. I feel that this selection covers the past dividend-paying history, the potential future earnings growth, and the valuation of the company.

I constructed a rating system that awards points for each of the previous named criteria. A “perfect” score would be 28 points, with four points awarded in all seven categories.

The next company in my portfolio comes from the publishing industry, which has fared poorly in the face of new technology and the Internet.  However, Meredith Corp. (NYSE: MDP) has received the highest score of the companies I have examined so far, with a total of 20 points.

Meredith is a media company and is categorized in the Publishing – Periodicals segment of the Services industry. However, in addition to Meredith’s stable of 20 high-profile national magazines and 120 specialty publications, the company also owns 30 magazine-related websites and 12 network-affiliated television stations, with 20 television-related websites. The company was founded in 1905 and is based in Des Moines, IA.

Dividend Metrics

In terms of its potential as a dividend-generating stock, I look at the current dividend metrics. Meredith’s yield is 4.5%, and it has a 20-year history of consistently paying and raising dividends. The last raise in its dividend was Dec. 15, 2011, for an increase of 50%.  The dividend was not raised in 2012, but the increase in December 2011 made the 2012 payout 33% higher than in 2011.  Based on Meredith’s dividend history, I expect an increase in the dividend the first half of 2013. The company’s 5-year DGR is 16.2%, which far exceeds my threshold of 7.0%.  The dividend payout ratio is 64%, slightly high but still reasonable.

Future Earnings Metrics

In terms of future earnings growth, the 5-year earnings growth rate as estimated by the seven analysts who cover the company is 15.0%, as compared to the growth rate for the industry of 15.6% and for the sector of 14.2%. (The S&P 500 5-year EGR is currently 9.1%). MDP’s earnings estimate for FY 2013 (ending June, 2013) is $2.80, compared to last year’s actual $2.50, an increase of 12%. The estimate for 2Q is $0.87, 58% higher than the Q1 actual of $0.55.

Valuation Metrics

The company has a TTM PE of 12.2, based on today’s price of approximately $34.  The average PE in the Services sector is 35.0, and in the Publishing - Periodicals industry it is actually negative based on losses.

Meredith is currently trading at about 11% less than its 52-week high of $37.84, reached in September, and up 10% from a year ago. Its twelve month total return is 13.5%.

Analyst Opinion

The Motley Fool community rates MDP a two-star CAPS pick, with 118 Bulls and 28 Bears. The seven professional analysts who cover the stock rank it a 2.6 (1.0 = Strong Buy, 5.0 = Sell) with three Buys and four Holds. They have assigned a one-year average target price of $34.50.

Zack’s Equity Research held Meredith at Neutral in a report issued in December, citing the company’s reliance on traditional advertising as a growth inhibitor. However, the report found it encouraging that the company is forming new alliances, including video-related and mobile initiatives, as well as demonstrating aggressive moves toward generating alternative revenue streams, such as via online platforms and through brand licensing projects.

Competition

The Publishing – Periodicals Company Index contains very few companies, and not much in the way of popular (household names) stocks.

I looked at another name-brand in the publications industry, Martha Stewart Living Omnimedia (NYSE: MSO). Unfortunately, MSO does not currently pay a dividend, so it cannot be evaluated using my dividend-scoring system. Nor do any of the other companies (many foreign-based) that are counted in the Publishing – Periodicals index.

In lieu of a direct competitor to Meredith, I chose to look at book publisher McGraw-Hill (NYSE: MHFI). It is currently trading at $54 per share and yields 1.8%. The company has been paying and raising dividends for 39 years, the 5-year DGR is 4.4%, the EGR is 13.5%, the PE is 18.2 and the payout ratio is 36%. In fact, the company scores a 17 on my dividend-scoring system, which would ordinarily be enough to receive serious consideration for my portfolio. The one big problem with McGraw-Hill, though, is that the dividend is so low at 1.8%. I am only choosing companies that yield 3.0% or better.

Conclusion

Meredith has many strengths, including excellent historical dividend growth, an attractive yield, a very reasonable PE, and decent growth over the past twelve months. It is now the fifth stock in my new dividend portfolio.

I will begin tracking it based on the closing price on the day that this article is syndicated.

 


khern0203 has no position in any stocks mentioned. The Motley Fool owns shares of The McGraw-Hill Companies. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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