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

The company’s strong score begins with its reasonable payout ratio. Meredith’s dividend has consumed just 43% of the company’s free cash flow generated over the last year. This is a healthy figure that provides a nice margin of safety and room for future dividend growth.

Meredith’s payout ratio has doubled over the last decade but has otherwise remained fairly steady most years. This is often the sign of a predictable business, which I like to see.

Source: Simply Safe Dividends

Another important factor impacting dividend safety is a company’s performance during recessions.

Meredith’s revenue fell by 10% in fiscal year 2009, but the business continued generating healthy free cash flow.

However, Meredith’s heavy debt burden made investors very nervous during the credit crunch and caused MDP’s stock to fall nearly 70% in 2008.

While Meredith was able to raise its dividend during the recession, income investors should be aware that the company’s high debt load could really whack its stock price.

Source: Simply Safe Dividends

Importantly, Meredith’s business model throws off excellent free cash flow, which is needed to pay dividends.

As seen below, Meredith has generated positive free cash flow for more than a decade. This consistency adds further support to the company’s dividend payment.

Source: Simply Safe Dividends

Return on invested capital is an important financial ratio to study because it often reveals clues about a company’s quality.

Many of the best businesses generate high returns on capital because they are very efficient and possess some sort of economic moat. This allows them to compound earnings (and dividends) faster if they have enough reinvestment opportunities.

Meredith’s return on invested capital has hovered near 10% most years, which is slightly above the corporate average. The dip in fiscal 2016 was driven by non-cash charges, which shouldn’t be repeated.

Source: Simply Safe Dividends

A final major factor to review for dividend safety is a company’s financial leverage. Debt payments will always be made before dividends are issued.

Meredith maintains $25 million in cash on hand compared to total debt of $695 million. Over $400 million in debt is due over the next three years as well.

While this could be cause for concern for some businesses, Meredith is still in a reasonably good place.