Another option is to pay an even higher dividend, akin to World Wrestling Entertainment (WWE, $15.99). World Wrestling pays an annual dividend of $1.44 per share (9.0%), which -- at first -- appears a red flag since annual earnings are only $0.70-0.80. However, at 9/30/09, the company had a net cash position of $202 million (17% of market capitalization) and trailing twelve month free cash flow was approximately $101 million (8.6% FCF yield). Over the past year, the company's net cash increased despite a huge payout. With an asset light business model (*although capex can vary year to year) and prudent working capital management (*note: w/c requirements not consistent over past several years - need to watch), World Wrestling appears capable of making $82 million in annual dividend payments and leaving the large cash pile entirely untouched. Per management commentary and guidance, the company expects to grow into the dividend over the next several years, improving coverage through reported EPS.
- "A long-run, consistent dividend policy is frequently essential if a company is to obtain general recognition in the financial community as a high-quality issuer. Such recognition tends to result in better prices for a company's common stock over the long-term, and may attract outside stockholders who are stable investors interested in income (insurance companies for example) rather than in-and-out traders or go-go speculators."
Disclosure: long JCOM.
© 2010 Jeffrey Walkenhorst
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