Several trends in technology are upending the media industry. While this phenomenon has given rise to important new players like Netflix, the media industry's most powerful names have adapted to this sea change rather than being washed away in the outgoing tide. As such, the top dividend-paying companies in media today consist of a well-known host of names, including Comcast (CMCSA -0.02%), The Walt Disney Company (DIS 0.09%), and Time Warner (TWX). In this article, we'll explore why income investors should love these three dividend-paying media conglomerates.
Comcast appears poised to capitalize from the forces that will reshape the media industry in the coming years. The company consists of two distinct, but complementary, businesses: content production and cable distribution.
Its cable operations count 26.5 million consumers and 2.1 million businesses as customers, split between cable, high-speed internet, telephone, or various bundles of those services. These customer relationships fuel the bulk of Comcast's financial results -- its cable operations produce about two-thirds of companywide sales and profits.
Moreover, they will continue to serve as the company's backbone, even as Comcast becomes one of a few companies to rewrite the rules of the media industry. You see, Comcast has notified investors that it plans to launch its own cellular network this year.
This might seem benign, given that the immediate benefit will be to drive more revenue to Comcast by way of adding wireless services to the menu of services consumers bundle together, but over the long term it will allow Comcast to distribute its cable content directly to mobile devices, as well. Only a handful of competitors, notably AT&T (T 1.27%) -- more on that below -- will be able to match Comcast with similar offerings.
In terms of its dividend, Comcast stock currently yields 1.6%, slightly lower than the S&P 500's 1.9% payout. Its current yield is largely on par with its average over the past five years. Comcast has increased its dividend for six consecutive years. At the end of the day, Comcast offers plenty for investors to like, though I see it as more of a sales-growth story versus an income investment today.
The Walt Disney Company
The House of Mouse is one of the most vaunted media companies anywhere, and its valuable content assets should ensure the company will remain relevant -- and its dividend will continue to grow -- in the coming years.
Much has been made of ESPN's recent struggles and understandably so. The self-proclaimed "Worldwide Leader in Sports" generates about half of Disney's operating income, so any changes at ESPN threaten to undermine the entire company's financial performance.
However, the company has signaled it understands its current situation and is in the midst of taking steps to prepare ESPN for over-the-top distribution. Disney CEO Bob Iger has gone on the record saying ESPN will launch a stand-alone streaming app in 2017. Meanwhile, Disney's management also has strengthened its remaining three reporting segments, so the company, as a whole, is far stronger today than it ever was a few years prior.
In terms of its dividend prowess, Disney may not be a Dividend Aristocrat, but the company has grown its payouts aggressively over the years. Case in point: Disney has increased its cash dividends from $0.20 per share in 2000 to $1.49 last year. While Disney's 1.4% yield might not seem impressive, the company's 26% payout ratio and its singularly valuable content assets should allow it to continue to generate impressive returns for its shareholders for years to come.
The investing rationale for Time Warner largely mirrors that of Comcast. With Comcast's launching its own mobile network this year and AT&T set to purchase Time Warner, the two will be the only companies in the media or telecom industry to own premier content production assets and wireless networks. Looking at Time Warner specifically, AT&T's pending buyout will close by the end of the year, especially as the company has already cleared its most important regulatory hurdle.
Importantly, current Time Warner shareholders will receive a 50-50 mix of cash and AT&T stock -- totaling $107.50 for each share -- which will allow current investors to participate in AT&T's continued move into the cable business. With Time Warner's flagship broadcast content in its back pocket, AT&T should be able to strike deals with other content powers, Comcast, and others to create a wireless cable bundle that can flow over its mobile network. Assuming the Time Warner buyout will close, let's examine AT&T's dividend history to get a sense of what Time Warner investors can expect.
Thankfully, AT&T enjoys a vaunted history of dividend payments. The company has increased its dividend for 32 consecutive years, and its current 4.7% dividend yield is well over twice that of the S&P. Furthermore, AT&T management has pledged that the Time Warner buyout will not affect its commitment to continued dividend growth. As such, the future appears bright for Time Warner shareholders as it moves to shape the future of the media as part of AT&T.