Meredith Corporation (NYSE:MDP) has never exactly been a household name, but many of its brands are.
The company is an old school magazine business that has been a chameleon over the years, constantly evolving and growing into a $1.6 billion multimedia powerhouse with a lineup of television stations, magazines, websites, and online apps.
For income investors, Meredith has been a reliable dividend-paying stock since 1947 and increased its payout for 23 consecutive years.
Furthermore, the stock offers an above-average 3.9% dividend yield and has seen its dividend compound by 12.6% per year over the last decade.
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Higher-yielding dividend stocks usually do not record strong dividend growth, and MDP’s stock also trades at a modest 14x forward earnings.
Let’s take a closer look at the company to determine whether or not it offers safe, growing dividend income (1) or could be a value trap as the media landscape evolves.
Business Description
Meredith has come a long way from its early 20th century roots when it printed the first issue of Better Homes and Gardens.
Innovation has been the pattern all along. Back in 1948 during the early days of television, Meredith acquired its way into the business that now generates nearly half of its profits.
According to Chief Development Officer John Zieser, Meredith has used both acquisitions and strategic partnerships to transform itself into a “360 degree” media and marketing powerhouse that primarily makes money from advertising (55% of sales). Magazine circulation accounts for another 20% of revenue.
In the process, it has captured the biggest share of adult females of any American media company. This is the company’s target customer.
Through all the transformation, MDP still operates in just two segments: Local Media (33% of sales and 57% of EBITDA) and National Media (67% and 43%).
Local Media consists of 16 company-owned television networks that reach 11% of U.S. households: seven CBS affiliates, five FOX affiliates, two MyNetworkTV affiliates, one NBC, one ABC affiliate and one independent. Each station comes complete with mobile apps offering news, sports, and weather. The segment makes money from advertising and retransmission fees, which are paid by cable providers in order to carry MDP’s stations.
National Media provides a mixture of print and multi-media platforms. Anyone who has ever passed though a grocery store checkout isle will recognize MDP’s original Better Homes and Gardens magazine as well as brands started or acquired over time: Parents, Family Circle, Martha Stewart Living, EveryDay with Rachael Ray, Shape and FamilyFun.
The National Media segment’s digital media presence consists of 50 websites, 30 mobile-optimized websites, and nearly 20 apps that reach 100 million American women monthly.
Roughly 60% of this segment’s audience is reached via print, with the remaining 40% through online and mobile sources. Digital accounts for roughly 30% of total advertising and continues increasing its share as more readers go online.
In summary, Meredith is taking its old print publishing business model and transitioning into the 21st century digital world.
