AHC Stock: A Surprising Reason to Consider This 6.6% Yielder
1 Unique Opportunity
As income investors, we like stocks that can pay a stable—and hopefully increasing—stream of dividends. This means we are always on the lookout for companies with a steadily growing business.
Today, however, I would like to talk about a company that doesn’t really have the best growth prospects. But what it does have is the potential to reward shareholders with a sizable amount of special dividends. And its regular dividends are not bad, either. Let me explain.
The company in question is A. H. Belo Corporation (NYSE:AHC). Headquartered in Dallas, Texas, A. H. Belo is in the local news and information publishing business. Its most well-known publication, The Dallas Morning News, has won nine Pulitzer Prizes. The company also publishes the Denton Record-Chronicle and various niche publications and offers digital marketing solutions.
As we know, the newspaper business hasn’t been in the best of shape. And A. H. Belo wasn’t able to avoid the downturn. In the third quarter of 2017, the company’s revenue declined 6.5% year-over-year to $60.6 million. (Source: “A. H. Belo Corporation Announces Third Quarter 2017 Financial Results, Real Estate Sales, Special Dividend, Stock Repurchase Program and Voluntary Pension Contribution,” A. H. Belo Corporation, October 30, 2017.)
Now, I know what you are wondering: why would income investors consider a declining business? Well, because newspapers are not the only thing A. H. Belo has. While the company is known as a newspaper publisher, it also has a quite substantial amount of real estate assets. And if it can unlock the value of those assets, shareholders might be able to see some serious returns.
The good news is, that’s exactly what A. H. Belo is doing right now. In the second quarter of last year, the company announced that it had three parcels of land located in Downtown Dallas available for sale. By October 2017, all three parcels of land have been sold for total net cash proceeds of $21.3 million. This generated a gain of approximately $12.5 million for the company. (Source: Ibid.)
Here’s the best part: with more cash on hand, A. H. Belo decided to reward shareholders with a special dividend. It was a one-time payment of $0.14 per share made on December 1, 2017.
The company also has a generous regular dividend policy. A. H. Belo pays quarterly dividends of $0.08 per share. At the current share price, AHC stock has an annual yield of 6.6%.
And if you add the last special dividend, you’d see that AHC stock investors have collected a total payout of $0.46 per share in the past 12 months. That gives the company a trailing yield of 9.5%. (Source: “A.H. Belo Corporation Dividend Date & History,” NASDAQ, last accessed January 4, 2018.)
Moreover, despite the downturn in the newspaper business, A. H. Belo still generates enough profits to cover its distributions. In the third quarter of 2017, the company earned a net income of $2.6 million, or $0.12 per diluted share. Considering that it paid a quarterly dividend of $0.08 per share during this period, AHC stock had a payout ratio of just 66.7%, leaving a margin of safety.
Final Thoughts on AHC Stock
At the end of the day, keep in mind that A. H. Belo has a huge cash pile. As of September 30, 2017, the company had approximately $50.0 million in cash and cash equivalents and no debt. (Source: “A.H. Belo’s (AHC) CEO James Moroney on Q3 2017 Results – Earnings Call Transcript,” Seeking Alpha, October 31, 2017.)
That is a considerable amount of cash given that the company has a market capitalization of just over $100.0 million. And if more real estate assets get sold, A. H. Belo’s substantial cash position means more special dividends could be on their way.