Investors see Comcast paying dividend in '08
NEW YORK, Jan 17 (Reuters) - Comcast Corp (CMCSA.O), the largest U.S. cable company, may have to initiate a stock dividend this year to boost its beleaguered share price, reversing a long-standing company policy.
Comcast has lost about 40 percent of its market value over the past 12 months as investors dumped the stock when it became clear that the cable service provider would be hurt by the U.S. housing slump and economic downturn, amid stiffer competition from telephone and satellite company rivals.
Long-term shareholder Gamco Investors (GBL.N) says that by offering a dividend, Comcast could attract a wider range of institutional investors who only buy stocks that guarantee dividends.
"I wouldn't be surprised if Comcast issued at least a nominal dividend this year," said Chris Marangi, a portfolio manager at Gamco, which holds 1.8 million Comcast shares.
Investors say they have been watching for any sign from Comcast executives, even their body language, when the issue of dividends comes up at conferences, and they believe the company is seriously considering one.
When asked at an investor conference why dividends are not part of Comcast's "shareholder dialogue," Chief Financial Officer Michael Angelakis said, "I don't think dividends are not part of the dialogue. They've always been part of the dialogue."
A Comcast spokesman said Thursday the company would not add to Angelakis' comments.
Comcast last issued a quarterly cash dividend, of around 2 cents a share, in March 1999. But in recent years, the company has favored stock buybacks. Analysts say this offers more flexibility as a strategy for returning value to shareholders than the constraints of a regular quarterly dividend.
In the year to Sept. 30, 2007, Comcast repurchased $1.85 billion worth of shares, and in October, it boosted its buyback program by $7 billion.
The repurchases have not done much for the stock, which is in "a valuation no-man's land," said Miller Tabak analyst David Joyce.
"Value investors don't want to buy it because they're not seeing free-cash-flow growth and there's no dividend, while growth investors are concerned about the onset of competition," Joyce said.
WRONG SIGNAL?
The challenge for the Comcast board is that a dividend could attract new investors but could also signal a lack of confidence in future business growth to lift the stock.
Comcast is not alone in avoiding dividends. Time Warner Cable Inc (TWC.N), the second-largest U.S. cable operator, and Cablevision Systems Corp (CVC.N) have also focused to varying degrees on reinvesting shareholder capital in upgrading their networks and launching new digital services.
But as cable companies now compete with phone companies in selling the same products to consumers, investors are starting to say their capital structures should also converge.
Phone companies like AT&T Inc (T.N) and Verizon Communications Inc (VZ.N) pay regular dividends and were among 2007's best-performing blue-chip stocks, while cable stocks were some of the worst blue-chip performers.
Bernstein Research values Comcast at about 11.6 times estimated 2009 free cash flow, compared to AT&T's 14.4 times and Verizon's 28.5 times.
"There's pretty much no difference between these companies other than the lack of a dividend," said a cable investor at a hedge fund who spoke on condition of anonymity.
"Based on what the CFO said and what I've heard from other people, Comcast is actively thinking about a dividend maybe this quarter. I don't know, but I'm hoping within a year," said the investor.
Bernstein analyst Craig Moffett said slowing subscriber growth actually means Comcast will have more cash for a dividend because the company does not have to spend as much on new set-top boxes and modem installations, for example.
"The risk of slower growth alone makes it all the more likely they'll reinitiate a dividend," said Moffett, who rates Comcast stock a "buy" with a target price of $30. The stock is now trading at around $18.
He and other analysts said they did not expect a large dividend from Comcast. Miller Tabak's Joyce said a dividend in the 1 percent yield range could be enough to satisfy a large number of potential shareholders.
((yinka.adegoke@reuters.com; +1 646 223 6081; Reuters Messaging: Yinka.adegoke.reuters.com@reuters.net)) Click here to see Reuters MediaFile blog Keywords: COMCAST/DIVIDEND
(C) Reuters 2008. All rights reserved. Republication or redistribution ofReuters content, including by caching, framing or similar means, is expresslyprohibited without the prior written consent of Reuters. Reuters and the Reuterssphere logo are registered trademarks and trademarks of the Reuters group ofcompanies around the world.nN16521760
