Comcast Corporation's (CMCSA) 2013 4th quarter earnings call had plenty of good news for shareholders, as Seeking Alpha has covered here. While earnings per share came two cents below estimates, Comcast:
- beat revenue beat by $300 Million
- added 1.8 Million new customers
- increased its buyback program to $7.5 Billion, with $3 Billion to be used in 2014 itself
- announced its annual dividend increase (15%), which is the focus of this article.
New Dividend and Yield: The new annual dividend per share of 90 cents gives Comcast investors a current yield of 1.70%. As a comparison, DIRECTV (DTV) and Dish Network Corporation (DISH) do not pay a dividend.
Payout Ratio: Comcast's dividend coverage seems pretty reasonable, with a trailing payout ratio of 56%. Based on 2014's expected earnings per share of $2.88, the forward payout ratio works out to a moderate 32%.
Free Cash Flow: Comcast's dividend seems safe from the free cash flow perspective as well.
- Total outstanding shares: 2.61 Billion
- Current quarterly dividend per share: 22.5 cents
- Total dividend commitment per quarter: (2.61 Billion times 22.5 cents) $587 Million
- Even the minimum quarterly cash flow in the last 5 years is more than sufficient to meet the dividends. The current dividend commitment is about 1/4th the average free cash flow of $1.73 Billion shown below.
5-Year Dividend Growth Rate: According to Yahoo Finance, Comcast Corporation has been paying increasing annual dividends since 2008. The 5-year dividend growth rate is impressive, as shown in the table below.
Extrapolation And Future Returns:
The table below shows what an investor might expect in terms of yield on cost if Comcast increases its annual dividend by 10% for the next 5 years and 5% for the next 5 years. Sure, this looks very low compared to the current dividend growth rate but Comcast operates in a space where disruption is common. So it is safer to err on the side of caution. Even then, the yield on cost more than doubles. Feel free to plug in your own dividend growth rate in the 2nd column below.
- The company is expected to grow its earnings at 19% per year over the next 5 years.
- Given Comcast's earnings beat history, one can at least expect the earnings to grow at 15% per year.
- If that holds true, earnings per share will be close to $5 in 5 years.
- If the company maintains its current payout ratio of 56%, investors can expect a dividend of $2.80 per share, which gives a potential 5-year yield on cost of 5% for those buying today.
- Estimates are always filled with guesses, so again if you would like to extrapolate these, please err on the side of caution and do not go overboard.
Conclusion: So, the conclusion is that we are grouping Comcast Corporation along with the likes of Starbucks and MasterCard as a company that offers a unique mix of dividend, dividend growth, and earnings growth (aka share appreciation).
Obviously, Comcast does not have the global presence the other two companies have but even there it is trying to make its presence felt. It will also be interesting to see how the NBC Universal acquisition plays out in the long term. Comcast's recent call conveyed the impression that NBC ratings and revenues have been good so far. This is good stock to hold if you are looking for aggressive growth companies that also pay a dividend. It has several good characteristics for investors, including:
- a reasonable PEG (less than 1)
- a strong dividend growth rate
- an expected growth rate of almost 20%
- a buyback program