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Media company shareholders must be pleased with the run in stock prices over the last year. Over the last 12 months, shares of Disney (DIS), Viacom (VIAB), Time Warner Inc. (TWX), and CBS (CBS) have returned between 40% and 65%. CBS, Disney, and Timer Warner are members of the PowerShares Dynamic Media ETF (PBS), which provides exposure to an index of media companies. Viacom is a member of the PowerShares Dynamic Consumer Discretionary Sector ETF (PEZ).
Rapidly increasing value in the content these companies produce has resulted in strong financial performance and cash flow. Management teams and boards of directors have been quick to deploy the excess cash in the form of share repurchases, helping drive up their stocks’ prices. As well as share buybacks, media companies have further boosted shareholder returns with dividends—or cash payments on each share.
Dividends versus stock repurchases
Companies can return cash to shareholders through either share repurchases or dividends. Share repurchase help increase the price of each share by spreading earnings out over a lower share count. Many investors prefer share repurchases, as the increased stock prices result in a capital gain, which isn’t taxed until the shares are sold. Cash dividends, on the other hand, are taxed as ordinary income when they’re received.
All four companies have deployed the cash they’ve generated from their solid operational results into both share repurchases and dividends. While Viacom moved most aggressively with repurchases, Disney paid out the most in total dividends, returning $3.8 billion since the beginning of 2010 and through the most recent quarter. Time Warner, Viacom, and CBS have returned $3 billion, $1.6 billion, and $700 million, respectively, over the same period. The dividends help sustain share prices, as they provide an immediate and dependable return for purchasing the stocks.
© 2013 Market Realist, Inc.