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It's presidential election time again and what do you see -- posters, slogans, debates, attack ads, rallies, and political party requests for money and support. Quite a bit of money will be spent on campaigns, especially once the candidates have been designated. Who will profit from all this action? One industry that will make some profit is publishing. This industry is in transition from print media to Internet media and this process will be accelerated during this time of joblessness and slow growth economy.

For those 50 and over, time is running out to build the retirement nest egg. The market has been extremely yield stingy lately and many higher yield dividend stocks are being bid up in price. This makes it risky to buy them in the secular bear market in which we find ourselves. Many are saying that this market is over-bought. The problems with the European debt crisis have driven the yield on the 30 year treasury bond down to 3.12% in a flight to safety. I believe that we are in the last year of the current business cycle and sectors such as consumer cyclical will benefit from sector rotation. Already this year, the financial sector (XLF) has risen 11.8%. While the consumer discretionary sector (XLY) is up 8.2%. Technology (XLK) is right up there with them. (SPY) is up 7% during this month and 1/2 time frame.


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This week we will highlight three publishing industry stocks; McGraw-Hill (MHP), John Wiley & Sons (JW.A) and Meredith Corporation (MDP). Data from David Fish's CCC charts and Yahoo Finance.

  1. McGraw-Hill -- Consumer Cyclical Sector. The McGraw-Hill Companies, Inc. provides information services for the financial, education, commercial, and commodities markets worldwide. The company operates in four segments: Standard & Poor's (S&P) Ratings, S&P Capital IQ/S&P Indices, Commodities & Commercial (C&C), and McGraw-Hill Education (MHE). This Dividend Champion has 39 years of increasing dividends. The current yield is 2.2%*. The 5-year dividend growth rate is 6.6%, while last year's dividend growth rate was 6.4%. The current P/E is 15.17. The projected earnings per share growth rate for next year is 13%, while for the next 5-years it is 10.4%. * It should be noted that the yield does not meet my 4% minimum for initial investment. A younger investor could establish a position for capital appreciation. The company is in the process of splitting itself up to increase shareholder value.
  2. John Wiley & Sons (JW.A) -- Consumer Cyclical Sector. John Wiley & Sons, Inc. publishes and sells print and electronic products worldwide. The company's Scientific, Technical, Medical, and Scholarly segment publishes titles for the scientific, technical, medical, and scholarly communities, such as academic, corporate, government, and public libraries, researchers, scientists, clinicians, engineers and technologists, scholarly and professional societies, and students and professors. This Dividend Contender has 18 years of increasing dividends. The current yield is 1.7%*. The 5-year dividend growth rate is 13.6%, while last year's dividend growth was 20%. The current P/E is 15.92. The projected earnings per share growth rate for next year is 8.3%, while for the next 5-years is 9.2%. *It should be noted that the yield does not meet my 4% minimum for initial investment. A younger investor could establish a position for capital appreciation. The yield + 5-year dividend growth rate justifies the current P/E and the dividend growth appears to be accelerating as shown by last year's 20% increase. The company is focusing on technology services.

  3. Meredith Corporation -- Consumer Cyclical Sector. Meredith Corporation, a media and marketing company, engages in magazine publishing and related brand licensing, television broadcasting, integrated marketing, interactive media, and video production businesses in the United States. This Dividend Contender has 18 years of increasing dividends. The current yield is 4.5%. The 5-year dividend growth rate is 12.4%, while last year's dividend growth was 24.7%. The projected earnings per share growth rate for next year is 16.5%, while for the next 5-years it is 7.2%. The current P/E is 13.45. The yield + 5-year dividend growth rate more than justifies the current P/E. Meredith is interested in shareholder value: "Examples of our fiscal 2012 accomplishments include our new three part financial strategy that's being well received by the investment community. It includes, first, 50% dividend increase to $1.53 a share, a new $100 million share repurchase program, and strategic investments in our businesses as opportunities arrive."

A chart comparing these three stocks over the last five years shows the cyclical nature of all three stocks, when compared to SPY (S&P500 Index ETF).


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As can be seen from this chart, all three publishers went down during the great recession in 2007-2009. However, JW-A was very price resilient and has gained almost 20% over the last 5-years. MHP and MDP remained down after the crash, but recently, MDP has started to make a run, especially with their strong dividend growth. MHP is moving up, probably due to the split up.

We will now look at the dividend income stream for these three stocks. With equal positions of $10k each purchased 1 year ago, these stocks produced a quarterly income stream as shown in the following table:

Stock

Quarterly Dividend Rate

Number of Shares

Quarterly Income

MHP

$.25

262.88

$65.72

JW-A

$.16

197.39

$31.58

MDP

$.26

285.71

$35.00

In order to investigate the growth of the portfolio, due to dividend reinvestment, I will once again create a spreadsheet for only the last year (January 2011-January 2012).

At this point, I will add a table to illustrate the growth of dividends received and the steadily growing income over time.

Stock

Q1

Q2

Q3

Q4

MHP

$65.72

$66.15

$66.54

$66.95

JW-A

$31.58

$39.60

$39.75

$39.93

MDP

$72.86

$73.39

$73.99

$112.24

Totals

$170.16

$179.14

$180.28

$219.12

In addition, I will illustrate the total value of this portfolio by quarter in the following graph:


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It can be seen from the table that the income for the year was $748.70. On an investment of $30k, this was 2.49% yield. It can also be seen from the Total Portfolio Value chart that the ending portfolio value was $27,979.75. This computed out to a loss of $2020.25 or -6.7%. This loss was due to JW-A and MDP losses during the summer 2011 swoon. MDP has become proactive about this and has retrieved some of it's loss in the last quarter of 2011.

When compared to , these consumer cyclical stocks performed slightly worse last year, especially when taking into account the fact that the dividends were reinvested (producing more shares during the summer swoon).

Conclusion: In the current secular bear market, sector rotation appears to be occurring from the financial sector into the consumer cyclical sector. With the structural changes occurring in publishing, these three stocks may prove to be good investments this year. There should be plenty of advertising aligned with the presidential campaign. It is critical that each investor does their own due diligence before making any investment.

Source: Election Year Diversification: Publishing Companies