Barclays on U.S. Media: What Should Media Companies Do with Their Cash?

Barclays on U.S. Media: What Should Media Companies Do with Their Cash?

Analyst, Anthony J. DiClemente, said, "In light of Disney's recent dividend raise, we are taking a closer look at the media companies' capital allocation strategies. First and foremost, we believe media management teams should start to return incremental capital through dividends. Buybacks, while still a form a capital returns, have the potential to destroy shareholder value if shares are purchased above intrinsic value, a legitimate risk in the context of an uncertain macro environment which could weigh on stock valuations. Also, with low borrowing costs for investment grade credit and corporate balance sheets flush with cash, we believe strategic acquisitions, particularly for international assets, could help boost relatively sluggish top line growth. We therefore believe capital allocation priorities should be as follows: 1) higher dividends, 2) strategic M&A, and 3) buybacks."

"Opportunity for media companies to raise dividends: Last week, Disney (NYSE: DIS) announced a 50% increase in its annual dividend to $0.60 per share, an encouraging sign for the health of the business and another positive step in returning capital to shareholders. However, of the seven large cap media stocks we cover, just two-Time Warner (NYSE: TWX) and Viacom (NYSE: VIAB)-have a dividend yield in line or above that of the S&P 500 at 2.2%. Therefore, we believe there is ample room for management teams to boost regular dividends, especially given strong balance sheets and FCF trends across the sector."

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