Meredith Corporation (NYSE:MDP): 23 Straight Years of Dividend Growth and a High Yield
Meredith Corporation (MDP) has never exactly been a household name, but many of its brands are.
The company is an old school magazine business that has been a chameleon over the years, constantly evolving and growing into a $1.6 billion multimedia powerhouse with a lineup of television stations, magazines, websites, and online apps.
For income investors, Meredith has been a reliable dividend-paying stock since 1947 and increased its payout for 23 consecutive years.
Furthermore, the stock offers an above-average 3.9% dividend yield and has seen its dividend compound by 12.6% per year over the last decade.
Higher-yielding dividend stocks usually do not record strong dividend growth, and MDP’s stock also trades at a modest 14x forward earnings.
Let’s take a closer look at the company to determine whether or not it offers safe, growing dividend income or could be a value trap as the media landscape evolves.
Meredith Corporation – Business Description
Meredith has come a long way from its early 20th century roots when it printed the first issue of Better Homes and Gardens.
Innovation has been the pattern all along. Back in 1948 during the early days of television, Meredith acquired its way into the business that now generates nearly half of its profits.
According to Chief Development Officer John Zieser, Meredith has used both acquisitions and strategic partnerships to transform itself into a “360 degree” media and marketing powerhouse that primarily makes money from advertising (55% of sales). Magazine circulation accounts for another 20% of revenue.
In the process, it has captured the biggest share of adult females of any American media company. This is the company’s target customer.
Through all the transformation, MDP still operates in just two segments: Local Media (33% of sales and 57% of EBITDA) and National Media (67% and 43%).
Local Media consists of 16 company-owned television networks that reach 11% of U.S. households: seven CBS affiliates, five FOX affiliates, two MyNetworkTV affiliates, one NBC, one ABC affiliate and one independent. Each station comes complete with mobile apps offering news, sports, and weather. The segment makes money from advertising and retransmission fees, which are paid by cable providers in order to carry MDP’s stations.
National Media provides a mixture of print and multi-media platforms. Anyone who has ever passed though a grocery store checkout isle will recognize MDP’s original Better Homes and Gardens magazine as well as brands started or acquired over time: Parents, Family Circle, Martha Stewart Living, EveryDay with Rachael Ray, Shape and FamilyFun.
The National Media segment’s digital media presence consists of 50 websites, 30 mobile-optimized websites, and nearly 20 apps that reach 100 million American women monthly.
Roughly 60% of this segment’s audience is reached via print, with the remaining 40% through online and mobile sources. Digital accounts for roughly 30% of total advertising and continues increasing its share as more readers go online.
In summary, Meredith is taking its old print publishing business model and transitioning into the 21st century digital world.
Media and publishing is a ruff and tumble business. History is marked by many high profile successes and littered with just as many failures. At the end of the day, success is all about advertising.
The key is having the right media assets to enable advertisers to deliver their sales message to consumers.
The value of media assets can change just like stock prices. The internet has been disrupting traditional television and print markets for more than 15 years. Those who have succeeded have found ways of adapting their media platform to a far more mobile internet customer.
Meredith is unique in that it is one of the last remaining media companies to maintain publishing and TV businesses under one company. It wouldn’t surprise me if the company spun off its publishing business in the future, as its TV operations are seemingly more valuable.
The Federal Communications Commission and other agencies regulate TV station ownership, which makes this entry fairly difficult to enter for potential newcomers.
Rule changes over the years have considerably lessened previous restrictions on the concentration, opening the industry to a long-term series of asset swapping and consolidation among its participants.
The attraction to the business is simple. Meredith receives a fee from cable companies to carry its network stations (i.e. retransmission fees) and also keeps some ad space to sell to local merchants. The cash flow is very appealing both for funding operations and to finance expansion.
MDP’s television assets reach metropolitan areas containing 11% of the US population. None of its stations are in major top 10 media markets like New York, Los Angeles, or Chicago.
Rather than being just another fish in big markets, MDP has chosen to seek market leadership in smaller places like Portland, Oregon, that are attracting lots of newcomers to the area.
The majority of the company’s stations maintain #1 or #2 ratings in their markets, which helps Meredith negotiate favorable retransmission fees with cable companies and receive a healthy return for its advertising slots.
According to CSIMarket.com, Meredith ranks #3 overall in Local Broadcasting with a 0.61% share of market close behind E.W. Scripps at 0.74%. In terms of advertising sales, MDP does not rank in the top 10 as measured by market share.
In publishing, MDP comes in ranked #5 by CSIMarket.com with a 0.14% share of the national market. However, these rankings can be deceptive since they include giant newspaper publishers like market leader News Corp at 0.59% things like The Wall Street Journal or Gannett Co. at 0.31% with USA Today.
What this shows is just how extremely fragmented the publishing business has always been. What this data does not reveal is who has made the right moves in the modern world of digital communication.
As seen below, Meredith’s publishing business has been rapidly transitioning to a more online and mobile audience over the last five years.
The company is working hard to transition its 30 million monthly subscribers to digital subscriptions, which are more profitable and can benefit from higher renewal rates.
Source: Meredith Investor Presentation
When combined with higher retransmission fees from its TV stations in recent years, Meredith has been able to reliably generate operating margins in the double-digits.
The company achieved record revenue last fiscal year and continued to report growth in print advertising, indicating that Meredith has so far found its way under changing industry conditions.
Meredith Corporation – Key Risks
Advertising revenue drives over half of Meredith’s total sales each year and is rather cyclical depending on political seasons and the overall health of the economy.
Spending will ebb and flow but shouldn’t impact Meredith’s long-term earnings power. However, the shift from traditional to digital advertising could.
Meredith’s Local Media publishing business generated about 75% of its advertising revenue from print sources last year.
While the company achieved 3% growth in print advertising spending last year, it could struggle to continue expanding. Growth in digital could more than offset any declines in print advertising, but it remains a risk for the publishing business (and Meredith’s overall growth).
Another risk factor to be aware of is retransmission fees, which I estimate