Dividend Safety Analysis: Comcast
We analyze 25+ years of dividend data and 10+ years of fundamental data to understand the safety and growth prospects of a dividend. Comcast’s dividend and fundamental data charts can all be seen by clicking here.
Our Dividend Safety Score answers the question, “Is the current dividend payment safe?” We look at factors such as current and historical EPS and FCF payout ratios, debt levels, free cash flow generation, industry cyclicality, ROIC trends, and more.
Dividend Safety Scores range from 0 to 100, and conservative dividend investors should stick with firms that score at least 60. Since tracking the data, companies cutting their dividends had an average Dividend Safety Score below 20 at the time of their dividend reduction announcements.
We wrote a detailed analysis reviewing how Dividend Safety Scores are calculated, what their track record has been, and how to use them for your portfolio here.
Comcast Corporation (NASDAQ:CMCSA)’s Dividend Safety Score is 98, which indicates that the dividend is extremely safe and one of the safest in the entire market. The key drivers of this phenomenal safety score are a relatively low payout ratio, consistent free cash flow generation, a stable economic profile, and a healthy balance sheet.
Currently, analysts expect Comcast to generate diluted earnings per share (EPS) of $3.51 for Fiscal Year 2016, and we expect the company to pay out about $1.10 per share in dividends. This implies a payout ratio of about 31%, which is roughly in line with historical levels since the dividend was reinstated in 2008.
Source: Simply Safe Dividends
Over its history, Comcast has been a great cash flow generator with positive free cash flow every single year over the last decade. This is despite a relatively capital-intensive business model. Comcast spent about $8.5 billion in 2015 on capital expenditures, which is up from $6.6 billion spent in 2013.
Source: Simply Safe Dividends
Comcast is investing in line extensions and in scalable infrastructure to increase network capacity. They believe that investments in the network help them stay ahead of increasing bandwidth consumption by customers. These investments can be monetized through increasing subscriber growth and increasing pricing due to better service and faster speeds.
Over the last three years, Comcast has generated between $7.5 billion and $10 billion per year in free cash flow while paying out around $2.5 billion in dividends per year. This implies a fairly conservative free cash flow payout ratio.
Source: Simply Safe Dividends
Over the last decade, Comcast has sustained a very stable economic profile. Operating margins have consistently been in the high teens to low 20% range, and sales growth has been positive every single year. Sales and earnings grew throughout the financial crisis as well, and Comcast’s stock outperformed the S&P 500 by more than 30% in 2008. Few companies can boast this type of stability that we love to see as dividend investors.
Source: Simply Safe Dividends
Comcast has a relatively healthy balance sheet for their business model as well. They have $4.7 billion dollars in cash and $55.5 billion dollars in gross debt. This implies a net debt/EBIT ratio of 3.2x.
While for some cyclical business this would be on the higher end of what we typically like to see, Comcast has a very stable, more recurring revenue based business model that produces predictable cash flow, which can support leverage on the balance sheet.
This assertion is backed up by Moody’s investment grade A3 senior unsecured rating on Comcast’s debt.
Comcast has the debt laddered nicely with $33.8 billion of the $55.5 billion in debt due after 2020, so there shouldn’t be any near term liquidity issues at the company.
Source: Simply Safe Dividends
Overall, Comcast’s dividend is extremely secure and investors should be able to count on safely collecting the 1.7% yield.
