DirecTV (DTV), Comcast Corporation (CMCSA), DISH Network Corp (DISH): Buying Winners and Avoiding Losers in Home Entertainment

Comcast Corporation (NASDAQ:CMCSA) has done a better job of building and protecting shareholder equity than DirecTV (NASDAQ:DTV), and that superior performance is reflected in the higher price to earnings multiple of 15.1 based upon the 2014 consensus estimate of the 19 analysts covering the stock. Comcast also pays a dividend to shareholders that produces a current yield of 1.82% and requires a payout ratio of only 29%.

Adding the dividend yield to the projected growth rate of the earning produces a fair value multiple of 14 times forward earnings. Since the stock is currently valued at 15 times 2014 earnings, it is reasonable for investors in Comcast to anticipate annual returns on invested capital of 13% to 14% between dividends received and share price appreciation.

Final thoughts and actions

As if the headwinds facing DISH Network Corp (NASDAQ:DISH) were not already severe enough to stress the business, management seems intent on expending time and resources pursuing what could be a very questionable acquisition of Sprint. Adding further leverage to an already extended balance sheet to acquire a business that is bleeding cash does not appear to represent the best interest of shareholders in the humble opinion of this writer.

With the addition of AT&T entering into this market with the introduction of its U-verse home entertainment service, DISH is faced with yet one more unneeded obstacle to success. The weakest contender in any space is always the first to fail when tough new competition enters the space.

Even though DirecTV (NASDAQ:DTV) and Comcast Corporation (NASDAQ:CMCSA) have some less than positive aspects to their businesses, they both seem to offer excellent prospects for survival and continued steady growth going forward. An allocation of capital split evenly between the two would seem to be a prudent course of action to allow investors to take advantage of the strengths of each business while cutting the risk of their different negatives by half.

The article Buying Winners and Avoiding Losers in Home Entertainment originally appeared on Fool.com and is written by Ken McGaha.

Ken McGaha has no position in any stocks mentioned. The Motley Fool recommends DirecTV. Ken is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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