Comcast (CMCSA 1.57%) is having itself a year. Not that 2020 was bad -- revenue fell only 2%, propped up by lots of demand for broadband internet connections while subsidiary NBCUniversal's theme parks and movie business was mostly shuttered due to the pandemic. But 2021 is shaping up to be a great run for the media conglomerate. Broadband internet subscriptions are still rolling in at a steady pace, adding to the rally NBCUniversal (as well as Sky across the pond in Europe) is enjoying as the effects of COVID-19 gradually ease. Total revenue increased 20% during the second quarter.
Granted, this is no growth stock. Comcast's double-digit percentage expansion likely won't continue into 2022. Nevertheless, for investors looking for some dividend income paired with slow-and-steady growth, this is a top pick to pay attention to. Here are three reasons why.
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1. Lapping the effects of the initial pandemic lockdown isn't a problem
Comcast said it added 354,000 net new broadband internet connections in Q2 2021, bringing its grand total up to nearly 31.4 million (compared to 29.4 million at the end of Q2 last year). There were also 280,000 wireless phone subscriber adds (Comcast uses Verizon's network for now, though it has been purchasing wireless spectrum, perhaps hinting at bigger plans down the road). Comcast's communications segment isn't perfect -- cable TV is still a drag, with net subscriber losses of 399,000 in the last three months, leaving just shy of 19 million remaining at the end of June. But internet and mobile are more than making up the difference.
In total, communications segment revenue was up 11% year over year to $16 billion, and adjusted EBITDA was up 14.5% to $7.1 billion. What's impressive about the figure is that this builds on top of the excellent showing it had last year as consumers stuck at home turned to Comcast for better internet connectivity. Far from a pandemic play, Comcast's bread-and-butter is a stable and still-growing business. Communications made up nearly 60% of Comcast's total revenue in Q2, and nearly 80% of total adjusted EBITDA.
2. Peacock, Universal Studios, and a whole lot of advertising
While communications is a stable breadwinner for Comcast, NBCUniversal is far more cyclical. Universal Studios was shut down for most of 2020, and the film segment is still trying to find its way, with the theatrical-release-only business model still struggling. Nevertheless, with parks up and running again, Fast and Furious 9 putting in a decent showing earlier this summer, and advertising activity back up compared to where it was last spring, NBCUniversal was in for a big rebound. Revenue jumped 39% to $8.0 billion, and adjusted EBITDA was up 12.5% to $1.6 billion.
Comcast's top brass also said on the earnings call that the streaming service Peacock is doing well, thanks in no small part to NBC's exclusive deal to broadcast the Olympics. As of the last week in July, Peacock had some 54 million total sign-ups and 20 million monthly active accounts. Peacock will next launch in Europe via Sky -- which reported a 15% revenue increase to $5.2 billion -- and will later go worldwide with third-party distributors.
NBCUniversal and Sky on their own won't make or break Comcast, but they're nice enhancements to the business overall, and highly profitable.
3. A free-cash-flow-generating machine
Comcast's dividend isn't the highest out there, with an annual yield of just 1.7%. But this is a safe payout with lots of room for improvement in the decade ahead. With half of 2021 now in the books, Comcast has generated $10.1 billion in free cash flow -- more than enough to sustain its dividend, which only used up $2.2 billion of this total through the first six months of the year.
This has been a great dividend compounder over the last decade. The current quarterly payout is 344% higher than 10 years ago (when adjusting for a stock split in 2017). With cash flow still on the rise and Comcast not using up much of it to dole out the dividend payday, there's reason to believe this income stock will only continue to improve.
After the last report, Comcast stock trades for a modest 19 times trailing 12-month free cash flow -- a reasonable value given that elements of the media giant will continue to lap depressed financial results from 2020 through the back half of this year.
