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Viacom Hikes Dividend

Zacks Equity Research

The board of directors of  Viacom Inc. (VIAB) recently hiked the company’s quarterly cash dividend by approximately 10% to 27.5 cents per share on class A and class B stock. The increased dividend will be paid on July 2, 2012 to shareholders of record as of June 15, 2012. The current dividend yield is 2.12%.

The recent hike in the dividend marks the company’s second dividend increase since it initiated dividend payment. Last year, the company increased its dividend from 15 cents to 25 cents.

Viacom possesses a strong balance sheet with $1.14 billion of cash and marketable securities. The excess cash available with the company will be utilized to repurchase shares or to pay dividends to its shareholders.

The nearest rivals of Viacom, News Corp. (NWSA) and Time Warner Inc. (TWX), pay quarterly dividends of 8.5 cents and 26 cents with dividend yields of 1.77% and 3.02%, respectively. These, however, are below the dividend paid by Viacom.

Viacom reported excellent financial results for the second quarter of 2012. Net income from continuing operations in the quarter was $588 million or $1.08 per share compared with $376 million or 63 cents per share in the comparable prior-year quarter. Adjusted EPS of 98 cents was also above the Zacks Consensus Estimate of 90 cents.

We believe that Viacom is well positioned for long-term growth as it continues to benefit from its predominately cable networks-based business model, strong affiliate fee revenue growth, continuous hit movie releases, strong share repurchase plan, multi-platform content, and is one of the fastest growing traditional ad media.

However, stiff competition from other media companies along with a slow economic recovery may act as headwinds for the stock going forward. We, thus, maintain our long-term Neutral recommendation on Viacom.

Currently, Viacom has a Zacks #3 Rank, implying a short-term Hold rating on the stock.

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