Comcast (NASDAQ:CMCSA) has a dividend yield of only 1.6% at current prices, but Comcast stock has rallied 280% over the past five years, which makes it a lucrative choice for investors looking for a decent balance between income and price growth. Let's take a look at four key things investors should know about Comcast stock.

Payout ratios
The simplest way to gauge a company's ability to raise its dividend is its payout ratio, or the percentage of its net income paid out as dividends. A lower payout ratio with improving earnings could indicate there's room for dividend growth.

Since a company's net income can be distorted by accounting, we can also check a company's FCF (free cash flow) payout ratio, which is the percentage of a company's FCF (operating cash flow minus capital expenditures) paid out as dividends.

A company's payout ratios should be compared to that of its industry peers, and not across different industries. This can be tricky for Comcast, since it straddles the telecom and media industries. 

Comcast's business is split into two halves: Cable Communications (landline, Internet, TV services) and NBCUniversal (TV, films, theme parks). Its Cable Communications arm competes with Time Warner Cable (NYSE: TWC) (which it has agreed to acquire), AT&T (NYSE:T), and Verizon (NYSE:VZ), while its NBCUniversal arm competes against media titans like Disney (NYSE:DIS) and Time Warner (NYSE:TWX).

Since Comcast is a hybrid telecom/media company, its trailing-12-month payout ratios also fall squarely between the two industries -- lower than the telecom giants, but higher than the media heavyweights.

 

Comcast

AT&T

Verizon

Disney

Time Warner

Earnings payout ratio

28.8%

55.8%

45.7%

20.1%

27%

FCF payout ratio

36.8%

84.4%

42.4%

23.3%

34.5%

Data source: YCharts.

Comcast's closest direct competitor in U.S. cable (after the Time Warner Cable deal closes), Charter Communications (NASDAQ: CHTR), doesn't pay a dividend.

Buybacks vs. dividends
A company's FCF can be used to buy back stock  as well as fund dividends. Comcast prefers the former over the latter. Out of its FCF of $6.53 billion over the past 12 months, it bought back $2.71 billion in stock, but only paid out $2.41 billion in dividends. Although both buybacks and dividends have climbed over the past five years, Comcast could spend less on buybacks and more on dividends. AT&T, for example, returned over 100% of its FCF to investors over the past 12 months, spending 30.7% on buybacks and 84.4% on dividends.

While buybacks decrease the number of shares outstanding and increase the value of individual shares, they are also often used to offset dilution from stock-based compensation and artificially inflate a company's stock price.

Comcast is unlikely to shift its balance between buybacks and dividends anytime soon, but it could afford to raise its dividend by simply decreasing buybacks. 

Return on equity
Another way to gauge a company's ability to raise its dividend is its return on equity (ROE). The higher a company's ROE is, the more efficiently the company converts investor dollars into profits, and the more cash it can likely generate for capital allocation decisions. 

CMCSA Return on Equity (TTM) Chart

Source: YCharts.

Comcast's trailing-12-month ROE of 16.3% is roughly in line with AT&T's, Disney's, and Time Warner's. Verizon's ROE notably spiked to 71.7% after acquiring Vodafone's 45% interest in Verizon Wireless. But excluding that $130 billion transaction, Verizon's ROE is actually lower than that of the other four companies.

Investors might think that since Comcast has a comparable ROE to AT&T, it has more freedom to boost its dividend closer to AT&T's annual dividend yield of 5.3%. But if we consider Comcast to be a media company instead of a telecom one, its yield already tops Disney's 0.9% and Time Warner's 1.5%. Moreover, a higher ROE doesn't necessarily mean a company needs to pay a higher dividend -- higher growth companies will likely use their cash to expand their business.

Protecting the top and bottom lines
Comcast might have room to grow its dividend, but it could argue that its stock is still in growth mode, having outperformed AT&T, Verizon, Disney, and Time Warner over the past five years.

CMCSA Chart

Source: YCharts.

Comcast is still posting steady top- and bottom-line growth. During the first nine months of 2014, Comcast's revenue rose 6.9% year over year as adjusted earnings per share (excluding one-time gains) rose 19.9%. Revenue at the Cable Communications division climbed 5.3% year over year during that period, as NBCUniversal revenue climbed 9.5% (3% excluding the Olympics).

Comcast's steady top- and bottom-line growth means it should be able to keep growing its dividend annually, as it has done since introducing one in 2008.

CMCSA Dividend Chart

Quarterly dividend. Source: YCharts

Comcast's proposed $45 billion acquisition of Time Warner Cable, which would merge the top two cable operators in the U.S., could also spark a new era of growth for the company if the deal is approved by regulators.

Leo Sun owns shares of Walt Disney. The Motley Fool recommends Walt Disney. The Motley Fool owns shares of Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.