Is Comcast Corporation’s Dividend Safe?

Cable and media giant Comcast (CMCSA +0.52%) generally isn't considered a top income stock, since its forward annual dividend yield of 1.6% is lower than the S&P 500's average yield of 1.95%. Comcast shares have also only climbed 6% over the past 12 months, underperforming the S&P 500's 10% gain.

Despite that lackluster performance, Comcast's dividend could still have room to grow. Let's take a closer look at Comcast's historical dividend hikes, payout ratios, and bottom line growth to evaluate just how safe its dividend is. 

Historical dividend growth and yield
Comcast isn't a "dividend aristocrat" (a company that raised its dividends annually for at least 25 years) since it stopped paying dividends between 1999 and 2007. Comcast brought back its dividend in 2008 and raised it every year, but the annual dividend hikes have been unpredictable.

Source: Corporate press releases. *Annualized basis.

Moreover, Comcast's dividend yield has slipped from over 2% in 2010 to 1.6% today, partially due to the stock's 240% gain over the past five years. A lumpy history of dividend hikes and a declining yield mean that Comcast probably isn't the most reliable stock for income investors.

Payout ratio
To gauge how much Comcast can raise its dividend, we should check its payout ratio, or the percentage of its earnings that it pays out to investors. A higher payout ratio is considered more "generous", but one approaching 100% indicates that the dividend is unsustainable. However, a lower payout ratio means that a company has more room to comfortably raise its dividend in the future.

Source: YCharts

Comcast's trailing 12 month payout ratio has declined since 2013, which makes its most recent 15% dividend hike seem paltry. Whether or not Comcast's 28.8% payout ratio seems "generous" depends on its classification as a cable company or a media one (NBCUniversal).

Time Warner Cable (NYSE: TWC) -- the second largest U.S. cable company after Comcast (and one that Comcast is trying to acquire) -- offers a heftier payout ratio of 40%. Yet NBCUniversal's rivals in media -- Disney (DIS +0.02%), Time Warner (TWX +0.00%), and Fox (FOX +0.00%) -- respectively have lower payout ratios of 20.1%, 27%, and 19%.

Therefore, Comcast can either be considered a "stingy" cable company or a "generous" media one.

Revenue and earnings growth
Comcast looks like it can pay a higher dividend, but it probably won't if its top and bottom line growth decelerate.

During the first nine months of 2014, Comcast's revenue rose 6.9% year over year as adjusted earnings per share improved 33.7%. Looking ahead into fiscal 2015, Wall Street expects Comcast to report 4% year-over-year revenue growth and 10% earnings growth. That would represent a slight slowdown from the 6% revenue growth and 18% earnings growth that the company is expected to report for fiscal 2014.

The Time Warner Cable wild card
Closing the $45.2 billion Time Warner Cable acquisition -- which has yet to be approved by the FCC -- could dramatically alter Comcast's financial outlook.

The merger will boost Comcast's user base from 21.7 million to 30 million (after selling 3 million customers), and boost its annual revenue by around a third. The combined company would control 35% of broadband Internet services and roughly a third of pay TV services across the country.

Comcast states that the merger will also cut $1.5 billion in operating expenditures and $400 million in capital expenditures within the first year. Those first year cost reductions will account for 50% of the "full synergy impact" of the deal, which Comcast expects to be realized within three years.

Acquiring Time Warner Cable will likely prevent Comcast's top and bottom lines from stagnating, but the proposed merger still faces intense opposition from a coalition of companies, public interest groups, and unions.

The verdict
Comcast's dividend is certainly "safe" -- based on its low payout ratio and consistent earnings growth -- but there's plenty of room for improvement, based on its bumpy history of dividend hikes and payout comparisons to industry peers. Merging with Time Warner Cable could certainly fuel higher earnings growth and lead to bigger dividends, but it's a wild card which could still be swept off the table.

For now, Comcast is a passable dividend stock, but I think Verizon Communications (VZ +1.51%) and Walt Disney, respectively, offer investors a better balance of income and growth in the telecom and media sectors than Comcast, which straddles both sectors.