Is your mother cool? Of course she is -- all moms are cool. But I bet you didn't think she was cool enough for World Wrestling Entertainment (NYSE:WWE).
In fact, she's more than cool enough. As a long-term investment idea, I think WWE ranks pretty high; it may be riskier than a blue-chip stock like PepsiCo, but that doesn't mean that mom can't have some fun with her portfolio. Believe me, wrestling (or wrasslin', as some say) isn't going the way of the dinosaurs. (Hulk Hogan, however, might be another story entirely.) Let me pitch you a few points.
Sure, the popularity of squared-circle storylines will rise and fall over time, and by extension, so too will the earnings of the company. One thing that mom will love about WWE is its cash generation. Taking a look at last year's annual report, we see an interesting fluctuation of earnings and free cash flow:
|
FY2005 |
FY2004 |
FY2003 | |
|---|---|---|---|
|
Net income |
$39.1 |
$48.2 |
($19.5) |
|
Net cash from operating activities |
$16.5 |
$61.9 |
$21.1 |
|
Capital Expenditures |
$5.1 |
$5.3* |
$10.6 |
|
Free Cash Flow |
$22.6 |
$56.6 |
$10.5 |
* Does not include the purchase of a corporate jet for $20.1 million.
Clearly, WWE generates the green. In fact, the company has become a dividend player; Rick Munarriz noted back in December that WWE doubled the dividend payable to its shareholders. Although Rick was cautious about the payout ratio at the time, I'm confident that the dividend is a sustainable one. For the nine-month period ended Jan. 27 of this year, WWE brought in more than $45 million of free cash while distributing $33 million of dividends.
Mom's wondering, of course, why the free cash was piledriven into the mat like one of Jerry Lawler's hapless opponents back in 2005. Not to worry; CEO Linda McMahon and her minions are expanding into Hollywood, using some working capital to get the paradigm going. The plan is to leverage the company's pool of wrestling talents to rake in more money from the multiplexes. First up is Kane; he'll be headlining a horror flick to be distributed by Lions Gate Entertainment (NYSE:LGF). It's called See No Evil, and if you've been watching wrestling lately, you already know the due date -- May 19. That's the great thing, mom, about WWE and movies -- the company can efficiently promote its products via its programming.
WWE has built itself up into a serious brand. Some moms might be a bit reticent about all the bumps and chair shots to the head, but don't worry -- the environment is controlled and nothing ever gets too dark. Believe it or not, it really is family entertainment, and as Vince McMahon proudly points out, it is an indisputable element of the American zeitgeist. Both kids and adults collect the merchandise based on the wrestling superstars, and gamers everywhere love the software simulations put out by the partnership between THQ (NASDAQ:THQI) and Jakks Pacific (NASDAQ:JAKK). I bet more than a few moms have bought some of this stuff for their kids.
There you have it. Movies, action figures, pay-per-views, and, most importantly ... stone cold cash. What more could a mother want? I'll leave with one last thing -- take a look at the yield. That 5% is pretty sweet on Mother's Day, isn't it?
Want some more Foolish info on WWE, Mom? We've got you covered:
Want to see what other stocks we're recommending for Mom this year? Check out the full list.
Fool contributor Steven Mallas owns none of the companies mentioned. He was only kidding about Hulk Hogan; in fact, he loves the Hulkster's reality show. The Fool has a disclosure policy
