The board of directors of Scripps Networks Interactive Inc. (SNI) recently announced a hike in the company’s quarterly cash dividend by 3 cents or 25% to 15 cents per share on its common stock. This will translate into an annualized cash dividend of 60 cents per share. The company will pay the dividend on Mar 8, 2013 to shareholders of record at the close of business on Feb 28, 2013.
This is the company's third dividend increase during the last two years. The company has been paying dividends uninterruptedly for the last few years. The recent hike will cost Scripps nearly $22.5 million each quarter, provided it does not issue or repurchase any further shares thereby resulting in a dividend yield of 0.97% as compared to 1.09% for the industry. However, the market did not react positively to the news as the stock price fell by 17 cents to close at $9.87 at the close of trade on Friday.
Scripps has sufficient cash to carry out this dividend hike program. The company exited the fourth quarter of 2012 with $437.5 million of cash and marketable securities on its balance sheet. During 2012, Scripps Networks generated $614.7 million of cash from operations compared with $728.9 million in 2011.
Scripps’ record of paying regular dividend is far better than some of its rivals like LIN TV Corp. (TVL) and Discovery Communications Inc. (DISCA), which have not paid any regular dividends in the last four years while Entravision Communication Corp. (EVC) has only paid two cash dividends in the last two years.
Recently, Scripps reported weak financial results for the fourth quarter of 2012, which fell below the Zacks Consensus Estimate. Quarterly adjusted earnings per share of 84 cents were way below the Zacks Consensus Estimate of 91 cents. The company’s quarterly total revenue of $604.7 million also fell short of the Zacks Consensus Estimate of $617 million.
We believe the company is raising its regular dividend to match its payout ratio of 10.56% with that of the industry average, which currently stands at 20.65%. However, we remain apprehensive about the rising programming costs, which will increase the cost of operations for Scripps. Increased expenses might reduce the company’s bottom line, thus impacting its returns to shareholders.
Currently, Scripps Network carries a Zacks Rank #3 (Hold).
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