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Meredith Corporation (MDP) - 16 Sep 2013 23:23

Tags: mdp meredith stock_review_2013

Meredith Corporation (MDP) is one of the leading publishing media companies in the U.S. and of course I wouldn’t be writing about it if it did not have Dividend Growth characteristics.

MDP has been increasing its annual dividend payout for 20 straight years with some impressive growth rates and meets all of my basic search criteria.

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Dividend Growth Rates
1-Yr 3-Yr 5-Yr 10-Yr
13.4% 11.9% 13.9% 28.4%

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Dividend Growth Rate Debt/Equity Ratio
Criteria MDP Criteria MDP
>= 7.2% 13.4% < 1 0.41
Dividend Yield Payout Ratio
Criteria MDP Criteria MDP
> 3% 3.67% < 70% 57.6%

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Over the last 3 years MDP has been increasing dividends faster than earnings growth. The company moved from a 34.8% payout rdatio in 2011 to a 57.6% payout ratio in 2013. Looking at the last 4 years of EPS reporting, earnings appear erratic and adds confusion if future dividend increases are sustainable.

2013 EPS 2012 EPS 2011 EPS 2010 EPS
2.74 2.31 2.84 2.78

If we take the numbers as face value MDP has a very limited upside for dividend growth but before we throw in the towel we should dig a little deeper.

mdp.jpg

MDP is most famous for its magazine publications Better Homes & Gardens, Ladies' Home Journal and Family Circle. They have been reading staples for almost every Mom over the decades.

MDP’s publication business consists of 18 National & 6 Latino brand magazines and nearly 100 special interest publications. But MDP is much more than just publications; it also has 13 broadcast stations, websites, mobile & tablet apps, and videos. The combination of all these elements position MDP more as a content provider than a publisher

The company’s primary objective is to remain the leading media & marketing company serving American women. This is a pretty tall order considering their largest competitor is the Hearst Corporation who is one of the largest media companies in North America. To stay relevant, beat the competition and maintain the American Woman’s interest the company has been laser focused over the last three years with strategic acquisitions.

Key Acquisitions
. 2013 – Parenting and Baby Talk magazines
. 2012 – web app AllRecipes.com and FamilyFun magazine
. 2011 – EatingWell Media Group and EveryDay with Rachel Ray

The number of acquisitions and cost of folding them into the MDP family does explain some of the erratic earnings over the last few years. Going forward, the additional products should add to revenue growth. Yet, I would be cautious and want to see 2014 earnings to determine if revenue is truly growing again and can support dividend growth rates that exceed 7%.

Looking at the recent stock price of approximately $44 per share it carries a trailing P/E of 16.19 and a forward P/E of 13.54. The 5 year average P/E has been 12.92 so the current stock price looks to be slightly over-valued.

In summary, MDP is currently paying a nice dividend yield with a long history of growth but has weakness with an increasing payout ratio and weak EPS growth. The real strength of the company lies in its ability to create content and deliver it on any media format.

Investing now is a small gamble that they can execute web and electronic media delivery to grow their business. If they provide mediocre execution during that time then you are probably looking at a few good years of dividend growth (7 to 10%) and then a slower growth rate (2 to 4%). If they provide strong execution then they will be able to maintain their aggressive dividend growth for many years to come.

Note: I do not own this stock at time of this writing. - Comments: 0


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