Operating and stock momentum
With their highly rated programming and valuable content, media companies have experienced a boom of late. Strong operational results have produced ample cash flow, which media companies have deployed to boost shareholder returns. The operating momentum combined with returns of capital have sent stocks such as Disney (DIS), Viacom (VIAB), Time Warner Inc. (TWX), and CBS (CBS) soaring with returns of 40% to 65% over the last 12 months. 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).
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These media companies have sought to satisfy investors by returning capital through increased dividends and share repurchases. How companies deploy excess capital is an important consideration in evaluating management teams’ approach to their own shareholders. However, for investors to judge which management teams and boards of directors have been the most shareholder-friendly, they must use comparable metrics across different companies.
One approach is to determine how much of the initial cost of the shares has been recovered, or paid back, in the form of shareholder returns. The chart above assumes shares of the considered companies were purchased on January 1, 2010, and then calculates how much of the initial purchase price was paid back in the sum of dividends plus the value of share repurchases.
Since the beginning of 2010, Time Warner Inc. has led the pack, returning nearly 90% of the value of its stock in under two years. In fact, investors who purchased TWX stock at the beginning of the period would have recovered 21% of their initial purchase cost back in the form of cash dividends alone. The company’s history in returning cash will likely attract investors in the future, helping sustain the stock price. While not as aggressive as Time Warner, Viacom and CBS both returned roughly 45% to their shareholders over the same timeframe. If the companies are able to sustain their operational run, investors can likely count on continued returns of capital, adding to the stocks’ momentum for some time.