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World Wrestling Entertainment's Payout Ratio Is Unsustainable

|Includes:World Wrestling Entertainment, Inc. (WWE)

People who follow pro wrestling, are aware of the dominant presence of World Wrestling Entertainment, Inc. (NYSE:WWE) in their industry.


This company's roots go back to the early 1900s when Jess McMahon, and Toots Mondt created Capitol Wrestling Corporation in the 1950s. It later changed to the World Wide Wrestling Federation, then it was changed again to the World Wrestling Federation, and finally the present day World Wrestling Entertainment Inc.

Earnings Per Share: The company's EPS are currently $0.42

Dividend: The company's is paying out a dividend of $0.48

Payout Ratio

This means the company is currently paying $0.48/$0.42 as a dividend 114.29% of earnings of dividends. If the WWE continues to do this, it will eventually go out of business. It's not a sustainable business model. The company has alternatives to fix this. One action is to cut the dividend, so the payout ratio is more realistic (40-50% of earnings), so the dividend is more along the lines of the $0.17 - $0.21/share. Another alternative the WWE could take is to increase profit margins, so the EPS exceeds the dividend by a wide margin. They could accomplish this by reducing expenses, or increasing their revenues by charging more for their merchandise, pay-per-views and house shows. It would probably be more sensible to cut the dividends to a more realistic level until they grow their business so they can pay that dividend. The book value of the company is $4.07/share, while the total cash per share is $2.23. The company has only $1.31 million in debt, which is very manageable, considering the company's market cap is well over $500 million. The company earned $15 million in the first quarter of 2012.

Number of outstanding shares=Market capitalization/Shareprice

=$577.25 million/$7.75/share=74 483 871 shares (rounded off).

If the company paid a $0.12 quarterly dividend in Q1, they would have paid $8938064.52 in dividends, leaving about $6000000 in earnings for Quarter 1.

The company needs to change the payout ratio to something more sustainable, or find a way to make their current dividend sustainable without damaging the company's profitability. Pro wrestling is a cyclical business as it is. The industry is pretty difficult at times, and the company doesn't need to self-inflict damage with this kind of practice.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Stocks: WWE