Company Description: Meredith Corp. publishes a suite of magazines and websites focused on food, parents and women (e.g., Better Homes and Gardens) and operates 12 local TV stations.
Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description:
1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number
MDP is trading at a premium to all four valuations above. Since MDP's tangible book value is not meaningful, a Graham number can not be calculated. When also considering the NPV MMA Differential, the stock is trading at a 42.9% premium to its calculated fair value of $50.15. MDP did not earn any Stars in this section.
Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:
1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%
MDP earned three Stars in this section for 1.), 2.) and 3.) above. A Star was earned since the Free Cash Flow payout ratio was less than 60% and there were no negative Free Cash Flows over the last 10 years. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45%. MDP earned a Star for having an acceptable score in at least two of the four Key Metrics measured. The company has paid a cash dividend to shareholders every year since 1930 and has increased its dividend payments for 24 consecutive years.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA) or Treasury bond? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
1. NPV MMA Diff.
2. Years to > MMA
The NPV MMA Diff. of the $594 is below the $1,100 target I look for in a stock that has increased dividends as long as MDP has. The stock's current yield of 2.9% exceeds the 2.64% estimated 20-year average MMA rate.
Peers: The company's peer group includes: Time Inc. (TIME) with a 0.9% yield, S&P Global Inc. (SPGI) with a 1.0% yield and Scholastic Corporation (SCHL) with a 1.9% yield.
Conclusion: MDP did not earn any Stars in the Fair Value section, earned three Stars in the Dividend Analytical Data section and did not earn any Stars in the Dividend Income vs. MMA section for a total of three Stars. This quantitatively ranks MDP as a 3-Star Hold stock.
Using my D4L-PreScreen.xls model, I determined the share price would need to decrease to $56.11 before MDP's NPV MMA Differential increased to the $1,100 minimum that I look for in a stock with 24 years of consecutive dividend increases. At that price the stock would yield 3.7%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $1,100 NPV MMA Differential, the calculated rate is 7.4%. This dividend growth rate is the higher than the 5.1% used in this analysis, thus providing no margin of safety. MDP has a risk rating of 1.75 which classifies it as a Medium risk stock.
MDP operates in a highly competitive environment and lacks an economic moat. Licensing deals have allowed the company to leverage its strong brands into incremental and profitable revenue streams. Its outlook carries too much risk to fit the criteria for my Dividend Growth Portfolio. I hold it in my High-Yield portfolio since is currently generating significant cash and will likely do so for the next several years. The stock has seen a significant run up since I first purchased it in January 2012. MDP is trading in excess of my calculated fair value of $50.15. I will wait for opportune times before adding to my position, as my allocation allows.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I was long in MDP (9.3% of my High-Yield Portfolio). See a list of all my Dividend Growth Portfolio holdings here.
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Tags: MDP, MSO, MHFI, SCHL,
