Published by Nicholas McCullum on July 1, 2017
There are certain sectors of the stock market that are well-known for having quality dividend stocks. Consumer staples, healthcare, and utilities all come to mind.
Corus Entertainment (CJREF) is not a company that falls within any of these sectors, as it is one of Canada’s largest media companies. However, it has many appealing characteristics for dividend investors.
What especially stands out about Corus Entertainment is the company’s 8.4% dividend yield, which includes it among the short list of stocks with 5%+ dividend yields.
In addition to Corus’ high dividend yield, the company pays monthly dividend payments.
Monthly dividends are ideal for retirees and other investors who rely on their dividend income to cover life’s expenses.
Unfortunately, there aren’t many companies that pay monthly dividends. You can see the full list of all 29 monthly dividend stocks here.
Corus Entertainment’s exceptionally high dividend yield and monthly dividend payments make it an intriguing stock for income investors.
This article will analyze the investment prospects of Corus Entertainment in detail.
Corus Entertainment is one of Canada’s largest media companies and owns or distributes the iconic brands shown below.
Source: Corus Entertainment May 2017 Investor Presentation, slide 4
Recently, Corus experienced a significant business transformation after acquiring Shaw Media in April of 2016. The transaction saw the combined company announce a new senior executive team and saw Corus assume Shaw’s 19 media assets, which include household names like:
One of the major benefits of this transaction is the potential for meaningful cost synergies post-merger.
The company is tracking ahead of its goal to deliver $40-$50 million in annual cost savings within 18-24 months of the acquisitions. To-date, Corus has captured $45 million in annual cost savings.
Source: Corus Entertainment May 2017 Investor Presentation, slide 5
The merger also added additional diversification to Corus, although the company still remains heavily concentrated in the Specialty/Conventional Television and Content Business segment. Further, about 66% of the company’s revenue is generated through third-party advertising agreements.
Source: Corus Entertainment May 2017 Investor Presentation, slide 6
The continued integration of the Shaw Media assets will be a large contributor to this company’s future growth moving forward.
Corus Entertainment’s future growth will be driven by targeted M&A opportunities, partnership-based growth opportunities, and best-in-class execution among its existing businesses. This is the strategy that has historically grown Corus and the company is remaining laser-focused moving forward.
Source: Corus Entertainment May 2017 Investor Presentation, slide 8
The importance of the company’s Shaw Media acquisition cannot be overstated. In the Business Overview section, I listed a few media assets that Corus acquired in the transaction. Here are a few more:
- National Geographic Canada
- BBC Canada
- A chain of radio stations ranging from Vancouver to Halifax
The transaction has truly made Corus a powerhouse in the Canadian media industry and will be a meaningful contributor to the company’s future growth as a business.
Competitive Advantage & Recession Performance
Corus Entertainment’s most notable competitive advantage is its leadership position among Canadian media outlets.
The company owns 7 of the top 10 specialty television channels and holds the same dominant position in women’s television and children’s television.
A collection of Corus’ most important brands can be seen below.
Source: Corus Entertainment May 2017 Investor Presentation, slide 10
Corus is not the most recession-resistant stock covered on Sure Dividend. Severe recessions can lead consumers to slash discretionary spending, such as television subscriptions. These budget cuts would cut into Corus’ profits if executed.
With that said, the company did not cut its dividend during the global financial crisis of 2007-2009 (although it did keep its payment steady for one year).
Corus’ ability to maintain its dividend during the last recession can be largely attributed to the company’s impressive free cash flow generation, shown below.
Source: Corus Entertainment May 2017 Investor Presentation, slide 17
All said, Corus should perform well during times of economic prosperity but worse during recessions.
Valuation & Expected Total Returns
Corus Entertainment’s future shareholder returns will be driven by its current dividend yield, valuation changes, and growth in the company’s earnings-per-share.
Corus Entertainment’s third quarter earnings release reported year-to-date diluted earnings-per-share of CAD$0.81. This puts the company on pace to earn about CAD$1.08 for the full-year of 2017.
The company is currently trading at $13.64, which is equivalent to a price-to-earnings ratio of 12.6 using our $1.08 estimate for 2017’s earnings.
The following diagram compares Corus Entertainment’s current price-to-earnings ratio to its long-term average.
Corus Entertainment is trading at a PE ratio that is slightly above its long-term average.
However, the company has traded at a persistently low PE ratio since inception, likely because it is a rather small business with a market cap of just $2.8 billion.
With that in mind, I believe that its price-to-earnings ratio is fair for this business and it is likely trading somewhere near fair value.
Corus future shareholder returns will also be meaningfully boosted by the company’s juicy dividend.
Corus currently pays a monthly dividend of $0.095 which yields 8.4% on the company’s current stock price of $13.64.
The following diagram compares Corus’ current dividend yield to its long-term average.
Corus’ dividend yield is noticeably higher than its long-term average, which may indicate that the stock is trading at bargain levels today.
The company is also committed to having both a safe and growing dividend. From the safety perspective, Corus paid out just 48% of its free cash flow in 2016.
For growth, the company has raised its dividend each year since it was initiated in 2004. Corus’ dividend history can be seen below.
Source: Corus Entertainment May 2017 Investor Presentation, slide 18
Based on these metrics, Corus seems well-positioned to continue delivering steady and rising dividend payments moving forward.
In the near-term, the company is focused on executing cost synergies from the Shaw Media acquisitions and reducing its leverage. Thus, dividend payments will likely be frozen at the current level, but will likely resume growth once the company’s leverage ratio falls below 3.0x at the end of fiscal 2018 (which ends in August 2018).
Source: Corus Entertainment May 2017 Investor Presentation, slide 16
The remainder of the company’s growth will be attributable to earnings-per-share growth. We can proxy the company’s future growth by considering its historical performance.
Corus’ long-term earnings-per-share history can be seen below.
Corus Entertainment’s earnings growth has been quite volatile. However, the company still has a solid chance of delivering double-digit total returns for today’s investors if it can even achieve ~2% earnings growth and its valuation multiple remains constant.
Corus Entertainment’s high dividend yield and monthly dividend payments make it appealing (on the surface) for income investors. However, as with any high dividend stock, careful due diligence must be performed to ensure the safety of the company’s dividend payments.
For Corus, the company’s dividend is covered by free cash flow and it is well-positioned to grow after its acquisition of Shaw Media. All said, the company may hold long-term merit for income investors looking for some media portfolio exposure.