Media Companies Are Swallowing Shares
Jordan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Companies can reward owners with their earnings power in two ways: pay cash dividends, or repurchase shares. Over time, companies that have consistently and aggressively paid cash dividends and bought back stock returned more to investors than the market average.
Some industries are better stewards of owner earnings than other industries. Let's look at some of the biggest media companies, and how they're enriching shareholders.
Media buyback binge
These companies have not only repurchased more than 5% of outstanding shares in the past year, but they have plans to buyback even more of their existing stock:
Viacom (NASDAQ: VIAB)
When it comes to cable, Viacom simply gets it. The company owns a variety of cable networks, from which it generates substantial monthly subscription fees. The company's premier asset is its Nickelodeon network, which takes the cake for the largest child audience and consistently posts impressive ratings. Most of the company's revenue comes from cable channels targeting a younger audience. Viacom also owns MTV and Comedy Central.
While Netflix and Amazon try to take the TV online, Viacom has a powerful position as a content creator.
Philippe Dauman is one of the most shareholder-friendly CEOs out there. In 2011, he laid out his plan, one which would return as much as $20 billion to shareholders in the form of dividends and repurchases. Viacom is delivering on that promise. As of January, the company had $3.3 billion remaining in its authorization. Since 2009, total diluted share count fell by nearly one-sixth from 608 million to 514 million shares.
Time Warner (NYSE: TWX)
One of the biggest names in media, Time Warner has a strong portfolio in the cable business with HBO, CNN, TBS, and TNT leading the charge for affiliate revenue.
Time Warner's assets generate impressive earnings. The company owns Warner Bros., which gives it access to a large library of movies that can create residual income streams in licensing the rights to streaming companies, specifically Amazon, which recently signed a deal to stream Warner Bros content in Europe.
Time Warner's edge is in its globally-respected programming. CNN International is available in nearly 200 countries around the world. Cable without Time Warner programming would be a tough sell – Time Warner has pricing power.
Share count has dwindled as the company returns cash to owners. Total shares outstanding fell from 1.145 billion in 2010 to 960 million shares in 2013, after reporting that it had purchased 16 million shares between January 1 and April 26, 2013. The buybacks aren't over yet. A new repurchase authorization replacing previous programs allows for the company to buy back $3.132 billion in common stock.
DirecTV (NASDAQ: DTV)
DirecTV offers subscription TV via satellite, an arrangement which allows the company to compete against local cable and telecommunications operators as the business requires less capital per subscriber. It also allows for worldwide penetration; the company has nearly doubled its business in Brazil in just three years.
Analysts believe that the company could grow its Latin America business exponentially ahead of the World Cup, which kicks off in June 2014.
DirecTV does not create its own content, but rather it leads in pay-TV products like NFL add-on packages. DirecTV customers spend more on cable than customers of any other provider. Spendy customers give DirecTV an edge when it comes to exclusive content negotiations.
DirecTV doesn't just pay up for content, it's a believer in paying up for its own shares. Since 2007, share count fell from 1.2 billion shares to 644 million in 2013, a near-halving of share count in just 6 years. A combination of organic growth and a lower share count sent EPS from $1.21 in 2007 to $4.58 in 2012 on a fully-diluted basis.
Upon releasing fourth quarter 2012 earnings in February, the company announced another repurchase authorization of $4 billion.
Traditional media vs. online media
Old school media stocks are bargains as they regularly return cash to shareholders. When one compares "old media" to rising media companies like Netflix, valuations are absolutely in favor of the old guard.
Ride aggressive buybacks to higher stock prices. These three stocks could be winners as they retire a significant portion of their outstanding share count.
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Jordan Wathen has no position in any stocks mentioned. The Motley Fool recommends DirecTV. 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!