Dividend Investor Portfolio #29: Media is the Message
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Dear Investor,
Welcome to the 29th edition of TipRanks’ Dividend Investor Portfolio & Newsletter.
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Market-Moving News: October 7, 2024
Stocks soared following the blockbuster September jobs report, with the strong Friday rally helping indexes reverse previous losses and notch their fourth consecutive week of gains. The S&P 500 (SPX) gained 0.22% for the week, and the Dow Jones Industrial Average (DJIA) inched up by 0.09%. Meanwhile, the tech benchmarks Nasdaq Composite (NDAQ) and Nasdaq-100 (NDX) were up by 0.10% and 0.13%, respectively.
After the Federal Reserve’s jumbo cut in September, market participants debated the size of the next interest-rate reduction, with traders seeing even chances between a 0.25% and a 0.50% cut. However, odds of another jumbo cut tumbled to near zero after data showed that the U.S. economy added 254,000 jobs in September, the most in six months and almost twice the expected new payroll amount. In addition to the blockbuster headline, labor data was better than expected across the board, with the unemployment rate falling to 4.1% and wages rising more than was projected. Moreover, July and August job growth numbers were upwardly revised, as was August wage growth.
These numbers not only underscore the continued resilience of the job market but also increase the odds that the economy will continue to grow above the trend in the current quarter. Although the jobs data diminished hopes for a larger interest-rate reduction, the numbers lifted risk sentiment that had been under pressure beforehand. Investors view a strong economy as better for the stock markets, as larger cuts would signify economic weakening.
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This Week’s Quality Dividend Stock Idea
Nexstar Media Group, Inc. (NXST) operates as a television broadcasting and digital media company. It focuses on the acquisition, development, and operation of television stations interactive community websites, and digital media services in the U.S.
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Broadcasting History
Nexstar Media Group was formed in 1996 and quickly began expanding through the purchase of television stations, M&A, and internal growth strategies. The company went public in 2003 shortly after acquiring Quorum Broadcasting and other stations that doubled Nexstar’s station portfolio. Nexstar completed several station acquisitions between 2010 and 2015, strategically assembling a highly effective local broadcast network. The company’s continued execution led to the 2016 purchase of 71 television stations and the digital media properties of Media General, which made Nexstar one of the country’s foremost local media companies. Upon completion of its acquisition of Tribune Media in 2019, Nexstar became the largest local television broadcast and digital media company in the nation.
Today, Nexstar operates over 200 stations (including partner stations), reaching 117 domestic markets or more than 70% of all U.S. television households. Of its 200 stations, 155 are affiliated with the four national broadcast networks: CBS, Fox, NBC, and ABC. The merger with Tribune made Nexstar the top broadcast affiliate for both Fox and CBS, as well as the number two partner for NBC and number three for ABC.
Nexstar’s national television properties include a 75% ownership in The CW Network, America’s fifth-largest broadcast network, NewsNation, America’s fastest-growing national cable news network in primetime, popular entertainment multicast networks Antenna TV and REWIND TV, and a 31.3% ownership stake in the Food Network.
The Company’s portfolio of digital assets, including The Hill, a leading independent political digital media platform, and NewsNationNow.com, as well as its 140 local TV station websites and 278 mobile apps, is collectively a Top 10 U.S. digital news and information property, attracting almost 99 million unique users.
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Media Matters
Of course, reaching such a large scale fast doesn’t come without costs: Nexstar’s debt load is considered large. However, the company’s diversified revenue streams stemming from its portfolio of scaled, strong national brands, as well as its operational excellence and strong long-term revenue growth trend, take the edge off its leverage levels.
With a market cap of $5.3 billion, Nexstar Media Group generates over $4.9 billion in annual revenues. The company’s revenue streams are diversified by geography, affiliation, and source. In 2023, 55% of total revenue arrived from distribution, 34% from core advertising (plus ~1% from political ads), and 10% from digital advertising and other sources. No single customer generated more than 15% of its revenue and no single market was responsible for more than 3% of the total. As for affiliations, no network represented more than 25% of its combined core and political advertising net revenue.
NXST emphasizes strict controls on operating and programming costs in order to increase net income, EBITDA, and free cash flow. The company continually seeks to identify and implement cost savings at each of its owned and affiliated stations, as well as other business units, helping them reach optimal terms with programming suppliers and other vendors. Its size permits Nexstar to achieve economies of scale, increasing financial and operational efficiencies.
As a result, Nexstar ranks significantly above the averages for Diversified Media peers in terms of ROA, ROIC, gross, and net profit margin. The company’s ROE, operating, and FCF margins make the top 20% of its industry.
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Economies of Scale
In the past decade, NXST’s revenues grew at a CAGR of 25%, while its earnings-per-share surged at a CAGR of 45%. Although in recent years there has been an industry-wide slowdown, Nexstar constantly strives to increase revenues through both organic and inorganic growth initiatives. For example, the company views digital advertising as key to faster revenue growth.
NXST is focused on better monetizing its digital content and audience, and growing its portfolio of digital products, services and content, and associated revenue streams. As part of this strategy, Nexstar centralized national advertising sales in-house to drive advertising sales across its diversified media portfolio. Nexstar can provide both national reach and activation of local audiences at scale via its data-driven, multi-platform focus, representing a differentiated and attractive value proposition for advertisers and brands in an increasingly fragmented marketplace.
In addition, Nexstar works to develop new revenue streams leveraging its platform and assets. The company is nearing the completion of conversion to a new technology standard, ATSC 3.0, which will enable it to provide new high-speed data transmission services to businesses and consumers. And, of course, the media champion continues to pursue television station acquisitions, as well as selective buyouts of companies that are complementary to NXST’s business strategy. Thanks to its robust business profile, NXST has the financial flexibility to invest in growth initiatives while continuing to return capital to its shareholders.
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Dividend Growth Star
In 2023, Nexstar generated net cash flow from operating activities of nearly $1 billion and returned $796 million of this net cash flow to shareholders in the form of share repurchases and dividends.
The company has been paying and consistently raising dividends for the last decade, which makes it a Dividend Contender. In the past five years, NXST grew its dividends at a CAGR of nearly 30%, with dividend growth accelerating to over 34% in the past three years.
Analysts project that over the next couple of years, the company’s dividends will continue to increase at an annual rate of over 25%. That is despite the fact that the company’s current dividend yield of 3.91% is considerably higher than average for its sector and higher than almost all of its competitors. Meanwhile, its earnings-based and cashflow-based payout ratios are lower than those of most of its peers in the industry, strengthening the outlook for continued, fast dividend growth.
In addition to dividends, Nexstar compensates its shareholders through aggressive buybacks. In July 2024, the company’s Board approved a new share repurchase program authorizing it to repurchase up to $1.5 billion of its common stock. The new buyback authorization is in addition to Nexstar’s existing share repurchase program announced in July 2022, of which $496 million remained at the date of approval. In 2023, Nexstar bought back its shares for over $605 million and added another $246 million of share repurchases in the first half of 2024.
Nexstar’s stock has risen by 21% in the past year, outperforming all of its comparable peers except for one (Sinclair Broadcast Group). Despite this outperformance, NXST is more than reasonably valued, with its PEs displaying notable discounts to the average valuations of the Communication Services sector and the Diversified Media industry. In fact, Nexstar comes at the middle of the valuation scale for its profitable U.S. competitors. Moreover, taking into account its future cash flows, the company looks undervalued by about 60%.
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Investing Takeaway
Nexstar Media Group, Inc. is a leading U.S. television broadcasting and digital media company with over 200 stations reaching more than 70% of domestic households. The company demonstrates operational excellence and benefits from economies of scale, which allows it to display favorable long-term earnings growth patterns. NXST offers diversified revenue streams, with an emphasis on distribution, advertising, and digital services, providing resilience and growth potential. Despite a substantial debt load, its strong cash flow supports shareholder returns, including dividends and share repurchases. With an attractive dividend yield of 3.91%, extremely fast dividend growth, and ongoing buyback programs, Nexstar is an appealing long-term income investment in the diversified media sector.
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Dividend Investor Portfolio
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Portfolio News
¤ The Ex-Dividend date for Edison International (EIX) is today, October 7th. The dividend payment date is October 31st.
¤ The Q3 2024 earnings season for Dividend Investor Portfolio companies will open with reports from BlackRock (BLK) and JPMorgan Chase & Co. (JPM) on Friday, October 11th.
¤ In other company news, JPMorgan Chase & Co. (JPM) acquired a substantial stake in The Star Entertainment Group Limited, an Australian casino operator.
¤ Kroger Company (KR) completed the sale of its specialty pharmacy business to Elevance Health. The specialty pharmacy, formerly owned by Kroger, serves patients with chronic illnesses that require complex care. The company said that the deal is not expected to have an impact on 2024 earnings.
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Recent Trades
None at the moment, although we are constantly evaluating stocks for a possible addition to the portfolio. Stay tuned.
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Portfolio Attributes
Dividend Portfolio Yield |
Expected Dividend Growth | Expected Annual Income |
3.94% | +10.20% | $4,606.96 |
Yield-on-Cost Adjusted, Weighted |
Average Analyst 12-Month Growth Outlook | 10K Per Stock at the Time of Purchase |
Current Portfolio
Name | EX-Dividend Date | Payment Date | Yield on Cost | Annual DPS |
Automatic Data Processing (ADP) | Dec 06, 2024 | Jan 01, 2024 | 2.24% | $5.60 |
Allianz SE ADR (ALIZY) | May 09, 2025 | May 28, 2025 | 5.67% | $1.49 |
Amgen (AMGN) | Nov 15, 2024 | Dec 06, 2024 | 3.09% | $9.00 |
BlackRock (BLK) | Dec 08, 2024 | Dec 23, 2024 | 2.56% | $20.40 |
Edison International (EIX) | Sep 27, 2024 | Oct 31, 2024 | 4.82% | $3.12 |
EOG Resources (EOG) | Oct 17, 2024 | Oct 31, 2024 | 3.95% | $3.64 |
JPMorgan Chase (JPM) | Oct 05, 2024 | Oct 31, 2024 | 2.86% | $5.00 |
Kroger (KR) | Nov 15, 2024 | Dec 01, 2024 | 2.82% | $1.28 |
LyondellBasell (LYB) | Nov 24, 2024 | Dec 04, 2024 | 5.27% | $5.36 |
Philip Morris (PM) | Sep 12, 2024 | Oct 10, 2024 | 6.06% | $5.40 |
Qualcomm (QCOM) | Nov 29, 2024 | Dec 13, 2024 | 2.25% | $3.40 |
VICI Properties (VICI) | Dec 20, 2024 | Jan 04, 2025 | 5.19% | $1.72 |
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Click here for more stock market analysis from TipRanks Macro & Markets research analyst Yulia Vaiman
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Disclaimer
The information contained in this article represents the views and opinions of the writer only, and not the views or opinions of TipRanks or its affiliates and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy, or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment, and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices, or performance.