David Einhorn is one of the most successful long/short hedge fund managers. He has averaged returns of nearly 20% a year since starting his hedge fund Greenlight Capital in 1996.
David Einhorn owns several dividend stocks with yields over 3%. This article examines the 3 dividend stocks that make up the largest percentage of David Einhorn’s portfolio with dividend yields over 3%.
#3 – Time Inc (NYSE:TIME).
Time Inc (NYSE:TIME) owns many instantly recognizable media brands including: Time, Health, Fortune, Travel + Leisure, Entertainment, Sports Illustrated, and People. In total, Time Inc. has 90 media brands. Time Inc’s print products reach over 120 million readers monthly. The company’s online properties also have over 120 million visitors per month.
Time Inc. was founded in 1922. In 1990,Time Inc. and Warner Communications merged to form Time Warner Cable Inc (NYSE:TWC). In 2014, Time Warner spun-off Time Inc. Since the spin-off, Time Inc. has paid steady dividends. The company currently has a dividend yield of 3.2% and makes up about 0.2% of David Einhorn’s portfolio.
Time Inc (NYSE:TIME) is a company in transition. Advertising revenue from the company’s print magazines is declining, while online revenue is growing. The company’s most recent quarter exemplifies this trend. Constant currency adjusted print advertising revenue declined 10% versus the same quarter a year ago, while constant currency adjusted digital advertising revennues grew 20% versus the same quarter a year ago. Adjusting for divestitures, constant currency revenue declined 5% for Time Inc. in its most recent quarter.
In full fiscal 2014 Time Inc. saw revenue decline 5%. The company is expecting further declines in fiscal 2015 of between 1.5% and 4% on the year. Why would David Einhorn invest in a declining business?
The answer is simple – Time Inc. owns iconic media brands that have potential for significant digital growth and online monetization. Time Inc.’s digital advertising revenue grew 20% year-over-year. This is exceptional growth. The company’s revenue declines are a result of falling print sales, not weakness in the company’s brand strength. Digital advertising revenue currently makes up 26% of the company’s total advertising revenue. As digital continues to grow, Time Inc. will eventually return to growth.
Time Inc. currently has $458 million in cash on its balance sheet. The company pays out around $84 million a year in dividends at current dividend levels. Time Inc. currently has a payout ratio of 55%. The company’s divdiend is not in any danger thanks to its high cash balance and fairly conservative payout ratio.
Time Inc (NYSE:TIME) also appears fairly cheap at current prices. The company is trading for a forward price-to-earnigns ratio of just 14. Time Inc’s revenues will likely continue declining for a few more years. The company will return to growth as its digital revenues continue to grow. Time Inc’s high quality media brands, strong earnings, and digital growth potential ensure it is in a better position than other ‘old media’ businesses – like newspapers.