For the professionals
When you move beyond simple revenue growth, many investors look for good cash flow growth as a way to determine if the company is really growing or not. Second, dividend focused investors like to see a low free cash flow payout ratio to make sure their dividend is well protected.
When it comes to operating cash flow growth, using a core measure of this number in the analysis eliminates some accounting changes that are otherwise included. Core operating cash flow consists of net income plus depreciation and may provide a better comparison than just using reported operating cash flow. On a year-over-year basis, CBS reported that core operating cash flow increased by more than 11%. Their only competitor to report stronger operating cash flow growth was Time Warner with a better than 37% increase. However, Time Warner had the advantage of multiple strong movie debuts which skewed the numbers somewhat. If we look at Comcast Corporation (NASDAQ:CMCSA) or Walt Disney’s core operating cash flow growth of nearly 6% and over 7% respectively, you can see the strength of the CBS business model.
What makes CBS’ core operating cash flow growth even more impressive is the company’s almost comically low free cash flow payout ratio. In calculating free cash flow, expanding the core operating cash flow measure seems to make the most sense. By using net income plus depreciation, and then subtracting capital expenditures, we get a good comparison between companies in the same industry.
Though each of these entertainment companies has a reasonable payout ratio, CBS leads the way at just over 14%. The next closest company by this measure is Comcast Corporation (NASDAQ:CMCSA) at over 16%. Though Disney and Time Warner have low payout ratios of nearly 27%, and over 30%, these numbers still are nearly double the percentage that CBS is working with.
While it is true that along with the lowest payout ratio, CBS has the lowest yield at just less than 1%, the company’s combination of strong operating cash flow growth and a low payout ratio would seem to argue for increased dividends in the future. Of course CBS also has a low yield partially because the stock has climbed nearly 50% (from $37.50 to $55.46 today) in the last year.
Whether you’re an amateur investor or a number-crunching professional, it seems apparent that “America’s Most Watched Network” offers something for everyone. Maybe investors should take a cue from television watchers and make this America’s favorite stock as well.
Cash Flow and Dividends Go Hand in Hand
Dividend stocks can make you rich. It’s as simple as that. While they don’t garner the notoriety of high-flying growth stocks, they’re also less likely to crash and burn. And over the long term, the compounding effect of the quarterly payouts, as well as their growth, adds up faster than most investors imagine.
The article This Stock Offers Something for Everyone originally appeared on Fool.com and is writtenby Chad Henage.
Chad Henage owns shares of Comcast. The Motley Fool recommends Walt Disney. The Motley Fool owns shares of Walt Disney.
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