Dividend Growth Analysis
Our Growth Score answers the question, “How fast is the dividend likely to grow?” It considers many of the same fundamental factors as the Safety Score but places more weight on growth-centric metrics like sales and earnings growth and payout ratios. Scores of 50 are average, 75 or higher is very good, and 25 or lower is considered weak.
Comcast’s Dividend Growth Score is 95, which indicates that the dividend has extremely good growth potential.
Comcast initiated their quarterly dividend in 2008 at 6.25 cents per share and has grown it every year since. The latest increase occurred near the beginning of 2016 when management raised the quarterly dividend by 12% to 28 cents per share.
Over the last five years, the dividend has grown at nearly a 23% CAGR (compound annual growth rate). Dividend growth has remained strong over the last three years as well, compounding by approximately 15% annually.
While we don’t expect the dividend to increase at a 20%+ rate going forward, we do expect the dividend to increase at a minimum mid- to high-single digit clip. The drivers of this are the relatively low payout ratio and solid earnings growth.
We believe that the company could increase the dividend at a faster pace, but management is focused on a balanced shareholder return plan which includes share repurchases.
Management has elected to repurchase billions of dollars of stock over the last few years, including $6.75 billion dollars in 2015 and $2.4 billion through the first six months in 2016.
Overall, investors should expect dividend growth of at least mid- to high-single digits with additional upside depending on how management decides to allocate the excess cash the company generates.
Valuation
Comcast currently trades around 19x 2016 earnings estimates and offers a dividend yield of 1.7%, which is in line with its five-year average dividend yield.
Comcast’s business model is pretty stable given the significant portion of revenue generated from predictable subscriptions and advertising. While there are risks to the business, the industry is likely to change slowly.
More importantly, Comcast will have a front row view of how the industry is likely to evolve and management can position the company to capitalize on new opportunities.
Overall, Comcast looks like it can drive mid- to high-single digit EPS growth or more if they continue to buy back stock. If this were to happen, investors look poised to generate a decent mid- to high-single digit annual total return from owning the stock at these levels.
Conclusion
Comcast is one of the largest media companies in the world with businesses spanning from cable distribution to content creation.
While Comcast doesn’t quite have the dividend longevity to be considered a blue-chip dividend stock (see some of our favorite blue chip stocks here), it has grown the dividend every year since reinitiating it in 2008 and has a solid five-year annual dividend growth rate over 20%.
While the current yield of around 1.7% doesn’t look very attractive for someone living off of dividends (3), the dividend should continue to grow at a nice pace due to the stability of the business model, Comcast’s low payout ratio, and a handful of earnings growth opportunities.
The business is not trading cheaply at 19x 2016 earnings forecasts, but investors should know that the dividend is safe and earnings should continue to grow, which could result in a reasonable total return over time.
Additional Links
(1) http://www.simplysafedividends.com/top-dividend-stocks/
(2) http://www.usatoday.com/story/tech/news/2016/09/20/comcast-wireless-service-due-next-year/90727694/
(3) http://www.simplysafedividends.com/living-off-dividends-retirement/
