Some of the world’s best investors stick to dividend portfolios. They know that a steady stream of income is a top wealth-building strategy, and that finding the best deals is vital. So today we’re going to review another one of the best dividend stocks around. Let’s take a look at Meredith’s dividend history and safety…
Business Overview and Highlights
Meredith (NYSE: MDP) is a $2.3 billion dollar business. The company is based out of Des Moines, IA, and it employs 7,900 people. Last year Meredith pulled in $2.2 billion in sales – that breaks down to $284,000 per employee.
The company runs within the communications sector and maintains a credit rating (B+) from the S&P. This allows Meredith to issue debt to expand operations and pay dividends.
One way the business expanded in the last year was by acquiring Time Inc, which was valued at $2.8 billion. The new revenue from Time Inc. might help with future cash flows. The company also paid another dividend last month.
10-Year Dividend History
Meredith paid investors $0.88 per share a decade ago. Over the last 10 years, the dividend has climbed to $2.13. That’s a 142% increase. You can see the annual changes below.
The compound annual growth is 9.2% over 10 years – but over the last year, the dividend climbed 4.9%. This slowdown in dividend growth isn’t a great sign. However, Meredith still might be a good income investment. Let’s take a look at the yield.
Current Yield vs. 10-Year Average
Meredith’s long history of paying dividends makes it one of the best dividend stocks around. This also makes its dividend yield a great indicator of value. A higher yield is generally better for buyers. Sustainability is also vital, and we’ll look at that soon.
Meredith’s dividend yield comes in at 4.24%, which is below the 10-year average of 4.66%. The chart below shows the dividend yield over the last 10 years.
The lower yield shows that investors have bid up the company’s market value. They might be expecting higher growth and payouts. But more often than not, the dividend yield is mean reverting with share price changes.
Improved Dividend Safety Check
Many investors look at payout ratio to determine dividend safety. To do this, they look at the dividend per share divided by the net income per share. So a payout ratio of 60% would mean that for every $1 Meredith earns, it pays investors $0.60.
Payout ratio is a good indicator of dividend safety, but accountants can manipulate net income. They adjust for goodwill and other non-cash items. Therefore, free cash flow is a better metric.
Here’s Meredith dividend payout ratio based on free cash flow over the last 10 years:
The ratio has been volatile over the last 10 years with an upward trend. This past year shows a payout ratio of 97.4%. This doesn’t give much wiggle room for Meredith’s board of directors to raise the dividend.
Closing Thoughts on Meredith’s Dividend History and Safety
Meredith pays a solid dividend, but it might not be the best stock to invest in. The trends show the dividend isn’t very safe for long-term investors.
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Good investing,
Rob
