Meredith Corporation (MDP): 23 Straight Years of Dividend Growth and a High Yield

The company has over $100 million in free cash flow available after paying dividends each year, and we already saw how consistently Meredith’s operations generate cash.

Furthermore, Meredith has up to $160 million available under its revolving credit facility. Refinancing some of the debt shouldn’t be an issue in today’s low interest rate environment, and the company could reduce some of its debt burden as well if it wants to.

Source: Simply Safe Dividends

Overall, Meredith’s dividend payment looks very safe today. The company maintains a healthy payout ratio, generates reliable free cash flow in most economic environments, and has a proven commitment to paying dependable dividends.

Dividend Growth Analysis

Our Dividend 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.

Meredith Publishing’s Dividend Growth Score of 55 suggests that the company has about average dividend growth potential.

The company has increased its dividend for 23 consecutive years and paid uninterrupted dividends for 69 years.

As seen below, Meredith Publishing has delivered excellent income growth over the years. The company has raised its dividend by 12.6% per year over the last decade and 6.1% annually over the last three years.

Source: Simply Safe Dividends

With reasonably healthy payout ratios and solid free cash flow generation, Meredith Publishing is positioned to continue rewarding shareholders with moderate dividend growth.

Management last raised the dividend by 8% in February 2016, and low- to mid-single digit increases will likely continue.

Valuation

Shares of Meredith trade at a forward-looking price-to-earnings multiple of 13.8 and offer a dividend yield of 3.9%, which is somewhat higher than the stock’s five-year average dividend yield of 3.6%.

As seen below, MDP’s management team believes the company can record 3-4% sales growth while expanding margins.

Under these assumptions, the stock has potential to deliver double-digit annual returns.

Source: Meredith Investor Presentation

I’m not as confident in the company’s long-term growth rate because of its exposure to print publishing.

Expectations for double-digit annual returns seem a little aggressive to me, and I would be more comfortable expecting GDP-like growth at best, which results in annual total return potential closer to 6-10%.