World Wrestling Entertainment: A High Dividend Stock Due for Big Profits

When looking for the top dividend paying companies, you might not automatically start thinking about body slams and full nelsons, but, then again, maybe you should, because World Wrestling Entertainment (WWE) has plenty of muscle in its balance sheet, and should be about to perform a smackdown of last years earnings when they report next week, on August 6th.

OK. So maybe WWE doesn't offer the most sophisticated entertainment on the planet, but when you start digging into their numbers, it's clear that this member of the high dividend stocks community has management that takes care of its shareholders. Here's how:

The McMahon family owns Class B shares, which are approximately 65% of the firm's entire outstanding shares. In order to safeguard the company's dividend for common Class A shareholders, in 2008 the family announced that it would forego any participation in the 2008 Q4 and 2009 Q1 dividend payouts.

Suddenly, the dividend payout ratio that looked unsustainable, (over 200%), is actually 98%.

Unfortunately, most of the financial websites are still listing the higher figure. Admittedly, this isn't the lowest payout ratio you'll find, but it's certainly sustainable, for the following reasons:

Unlike its 2008 Q1 report, WWE's 2009 Q1 report didn't include the revenue from WrestleMania 25, a hugely profitable event that set the record for Pay-per-View Sports Entertainment revenue, grossing $43 million. In addition, this live event outdrew the 2004 Super Bowl in attendance, bringing in an additional $8.5 million in ticket and merchandise revenue.

None of this nearly $52 million in revenue was in the Q1 numbers, which is a major reason for Q1's poor comps vs. 2008. This revenue, plus the revenue from the many other PPV/Live events this quarter, should enable Q2 2009 earnings to do a full body slam vs. 2008's Q2 earnings. (Sorry for the wrestling metaphor hype, I just couldn't resist...)

Back on May 1 of 2009, WWE reaffirmed its quarterly payout of $.36/share, and said that the McMahons would receive just $.24 of the $.36/share payout, again taking a backseat to protect shareholders. The interesting thing to note here is that this is probably based on management's knowledge that Q2 earnings will be substantial. After all, if earnings were good, why shouldn't they participate?

WWE's $1.44/share total annual payout is a dividend yield of nearly 11%, at today's $13.25 price/share, a high dividend yield in any book.

The company has a very strong balance sheet, and is virtually debt-free:
Quick Ratio: 4.31 Debt/Equity: .01 Long Term Debt/ Equity: .01

In addition, it is highly profitable, with 43%-plus gross margin.

One other thing to consider here is the fact that WWE gets no respect from Wall St., in spite of the efforts of its founder, Vince McMahon, who is a very astute businessman. I would wager that if the company continues to be ignored by the street, he may eventually take it private again sometime in the future, which, again, would be a sweet deal for shareholders.

Disclosure: Author is long shares of WWE, but he's never worn a spandex body suit, or a face mask.

Comments

[Jeffrey Wal...:]

DD - WWE has excellent franchise characteristics and an excellent balance sheet with lots of cash and almost no debt. Still, the dividend coverage remains questionable - TTM cash flow from operations was $68.5 million less TTM capex of $18.2 million for free cash flow of $50.3 million. TTM dividends were $81.6 million. The good news is that the company can seemingly continue paying from its large, ~$200 million cash pile for perhaps 5-6 years (assuming current TTM figures) before burning through the cash. Of course, at some point, growth should return to the business and WWE may be able to grow into its dividend.
-JW

Jul 31 08:02 PM

[tedster98:]

Considering this is a company that serves and caters to morons (viewers) who fork over their hard earned dollars to watch a fake "sport" and also considering and the owners are anything but intelligent managers- it does extremely well, in fact, it is a good buy. I would wait for further price depreciation before buying. Perhaps around 11.15 a share.

Aug 01 09:12 AM

[tedster98:]

correction. The owners are smart (didn't read right after posting) and the price point should be around 12.15 a share for a buy in

Aug 01 09:16 AM

[casey00001:]

Obama should make Vince McMahon one of his Czar's. At least one of them would have business experience and McMahon is not afraid to talk to the press (ie. Ratner)

Aug 01 10:22 AM

[David Van K...:]

The McMahon family not participating fully in dividends "to protect shareholders" is nice, but it suggests the family (which knows all the inside dope) is not highly confident about the future of the company's financial situation over some short or long time period. In essence, they cut their own dividend. That counts as a dividend cut in my book, and dividend cuts are a big red flag for me. I'd therefore consider this company as a speculative investment, which is not what I'm looking for as a long-term dividend investor.

Aug 01 02:10 PM

[ebschor:]

David,

I think it's a bit different for WWE. Yes, they cut their own dividend, but the company is a money printing machine for them. The fact that they took the cut speaks volumes. Nobody would have batted an eyelash if they cut the dividend across the board. Instead, they took the hit and let the non-family shareholders prosper.

I've owned WWE for years, and was extremely happy when I was buying shares +- a few dimes around $9.00/share. I think of WWE shares as a long-term bond. Yes, there may be capital appreciation in the share price, but I'm holding WWE in my portfolio as a high-yield bond with NO maturity (unless the company goes private as the author mentions).

Aug 01 02:53 PM

[jculley:]

" a hugely profitable event that set the record for Pay-per-View Sports Entertainment revenue, grossing $43 million. "

I don't trust an article where the author either lies or makes it obvious he didn't do his research. De La Hoya/Mayweather did 2.15 million buys and grossed $118 million. UFC 100 did $75 million on 1.5 million buys. A Tyson fight is up there at 1.9 million buys.

WWE is getting crushed by the UFC on PPV buys and revenues. More and more fans are switching from fake fights to real fights, there will always be a niche for pro wrestling as a soap opera for men but it will never be a real investment.

Aug 01 04:22 PM

[dh772:]

De La Hoya / Mayweather and UFC 100 are "Sports". The record quoted is for "Sports Entertainment" so is accuarate.


On Aug 01 04:22 PM jculley wrote:

> " a hugely profitable event that set the record for Pay-per-View
> Sports Entertainment revenue, grossing $43 million. "
>
> I don't trust an article where the author either lies or makes it
> obvious he didn't do his research. De La Hoya/Mayweather did 2.15
> million buys and grossed $118 million. UFC 100 did $75 million on
> 1.5 million buys. A Tyson fight is up there at 1.9 million buys.
>
>
> WWE is getting crushed by the UFC on PPV buys and revenues. More
> and more fans are switching from fake fights to real fights, there
> will always be a niche for pro wrestling as a soap opera for men
> but it will never be a real investment.

Aug 10 07:41 AM