The stock screening included four main criteria: (1) the stocks must be in the media and broadcasting sector, (2) dividend yield must be above 4%, (3) return on capital must be higher than 15%, and (4) EV/EBITDA must be in the range of 1 to 10. Let’s have a look at the top three companies.
A Russian television channel operator
CTC Media, Inc. (NASDAQ:CTCM) is the operator of three Russian television channels including CTC, Domashny, and Peretz. While CTC Media, Inc. (NASDAQ:CTCM)’s signal covers around 100 million people, the signals of Domashny and Peretz cover around 63 million and 61 million people, respectively. CTC Media, Inc. (NASDAQ:CTCM), which is considered the company’s flagship network, was the fifth most-watched channel in Russia, with an average overall audience share of 6.9% in 2012.
The business employs quite a conservative capital structure. As of December 2012, it had $728.3 million in total stockholders’ equity, $187 million in cash and short-term investments, and only $13 million in short-term debt. What might worry investors is its high goodwill and intangible assets of $400 million. Thus, its tangible book value stayed at $328.3 million.
CTC Media, Inc. (NASDAQ:CTCM)’s business seems to be quite profitable with as much as 43.5% return on capital and 28.9% operating margin. At $12 per share, CTC is worth around $1.9 billion on the market. The market values CTC Media, Inc. (NASDAQ:CTCM) at around 7 times EV/EBITDA. At the current trading price, CTC offers investors a juicy dividend yield of 5.2%.
Negative book value and substantial leverage
Regal Entertainment Group (NYSE:RGC) is the operator of the biggest and the most diverse theater circuit in the U.S., including 6,880 screens in 540 theaters in 38 states and the District of Columbia. The majority of its revenue, $1.93 billion, or 68.3% of overall revenue, was generated from admissions while concessions contributed nearly $750 million in revenue in 2012.
Regal Entertainment Group (NYSE:RGC) has a weak balance sheet with a lot of leverage. As of December 2012, it had a negative equity of nearly $700 million, $110 million in cash, and as much as $1.9 billion in long-term debt. Investors might think that Regal Entertainment must be a cash cow in order to take on heavy debt burden. Indeed, in the past ten years, Regal Entertainment Group (NYSE:RGC) has generated consistently positive, but fluctuating, operating cash flow and free cash flow.
In 2012, its operating cash flow was $347 million while the free cash flow stayed at $257 million. With $533.5 million in EBITDA, the net debt/EBITDA is around 3.35.
Regal Entertainment Group (NYSE:RGC) has been quite profitable with an operating margin of 12.4% and the return on capital of more than 25%. At $17 per share, Regal Entertainment Group (NYSE:RGC) is worth around $2.65 billion on the market. The market values the company at 8.5 times EV/EBITDA. Income investors might like Regal Entertainment Group (NYSE:RGC) with its juicy dividend yield at 4.9%.
Super-strong balance sheet with the highest yield
World Wrestling Entertainment, Inc. (NYSE:WWE) is an integrated media and entertainment business, operating in four main business segments: Live and Televised Entertainment, Consumer Products, Digital Media, and World Wrestling Entertainment, Inc. (NYSE:WWE) Studios. The majority of its revenue, $353.8 million, or 73% of the total 2012 revenue, was derived from Live and Televised Entertainment, while Consumer Products ranked second with $87.7 million in revenue. Those two segments are the biggest profit contributors, generating $118.2 million and $47.8 million in profit, respectively.
What I like about World Wrestling is its super strong balance sheet. As of December 2012, it had $295 million in total stockholders’ equity, $152 million in cash and short-term investments, and no debt. Its return on capital stayed at around 16.6%. World Wrestling Entertainment, Inc. (NYSE:WWE) is trading around $9 per share, with a total market cap of around $649 million. It is valued at 7.7 times EV/EBITDA. Among the three companies, World Wrestling Entertainment, Inc. (NYSE:WWE) offers investors the highest dividend yield at 5.3%.
My Foolish take
Investors need to dig deeper to find out whether or not these three companies are suitable for their investment portfolios. Personally, I think these companies are quite attractive to income investors due to their high dividend yield, double-digit return on capital, and reasonable valuations.
The article Profitable and High Yielding Media Stocks originally appeared on Fool.com and is written by Anh Hoang.
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