Gannett Co., Inc. (GCI) operates as a news and information company in the United States and the United Kingdom. It operates in two segments, Newspaper Publishing and Broadcasting.
Gannett Co is a dividend aristocrat as well as a component in S&P 500 index. Gannett has been increasing its dividends for the past 39 consecutive years. The next increase will be in July, based on the past several years.
Over the past 10 years the company has delivered a negative average total return of 2.70 % annually to its shareholders.
At the same time the company has managed to deliver a meager 2.00 % average annual increase in its EPS.
The ROE has been in a steep downtrend from its 1998 highs at 25% to less than 11% in 2007. The decline in the newspaper business is the main driver behind the deterioration in fundamentals.
Annual dividend payments have increased over the past 10 years by an average of 6.70% annually, which is above the growth in EPS. A 6.70% growth in dividends translates into the dividend payment doubling every eleven years. If we look at historical data, going as far back as 1985, GCI has indeed managed to double its dividend payments every eleven years. If the company does not increase its EPS over time, any future dividend increases would be unsustainable
If we invested $100,000 in GCI on December 31, 1997 we would have bought 1662 shares. Your first quarterly check would have been $315.78 in March 1998. If you kept reinvesting the dividends though instead of spending them, your quarterly payment would have risen to $770 by December 2007. For a period of 10 years, your quarterly dividend has increased by 110.50 %. If you reinvested it though, your quarterly dividend would have increased by 143.90%.
The dividend payout has remained below 35% during our study period. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings. Even with the small growth in earnings, it could take several years of positive dividend growth and flat earnings for this ratio to cross 50%.
I think that GCI is attractively valued with its low price/earnings multiple of 6.50 and low DPR. The company also boasts an above average dividend yield at 5.50%. GCI does seem to have troubles selling advertising for its newspapers. The growth of the internet represents a threat to the newspaper industry. I do believe though that the newspaper industry will survive. It survived the radio, TV so it will survive the internet. This stock is not for everyone as it is a true contrarian play, which has its place in a diversified dividend portfolio. I would consider initiating a position by spreading my purchases over a 12 month period.
Disclosure: I do not own GCI.