Time, Inc. (TIME): Be Careful Buying High Current Yield

Expanding a little further about being careful focusing on high current yield and focusing more on dividend growth let’s take a look at Time Inc. (TIME).

Time was spun-off from Time Warner Inc. (TWX) in June of 2014. The company initiated a quarterly dividend of $0.19 per share in November of 2014. Time’s current yield is 4.93%. It is an attractive yield but we want high dividend growth over high yield. We want to grow our income over time. We don’t think Time can provide the growth we want and it’s possible Time won’t grow its dividend at all..

Time’s business is magazines. Like all business associated with print media, it is struggling in the new digital age. The chart below by Andriy Blokhin highlights Time’s declining sales and revenue.

Click image to enlarge. Chart courtesy of Seeking Alpha.
Click image to enlarge. Chart courtesy of Seeking Alpha.

Time’s operating (EBIT) margins over the last few years.

Data from S&P Capital IQ. Click image to enlarge.
Data from S&P Capital IQ. Click image to enlarge.

Free cash flow has followed suit.

Data from S&P Capital IQ. Click image to enlarge.
Data from S&P Capital IQ. Click image to enlarge.

The baffling thing is why did Time Inc start a dividend anyways? They are facing a tough time with declining subscribers, revenues, margins, and free cash flow. Time has also been selling real estate assets in sale-leaseback deals to raise cash. Time needs all the cash it can keep while trying to turn its business around. Time should not be paying a dividend right now and they may have to cancel their new dividend policy. Dividends paid out are consuming most of Time’s free cash flow.

Data from S&P Capital IQ. Click image to enlarge.
Data from S&P Capital IQ. Click image to enlarge.

While the high dividend yield is atttractive, we want to make sure that the company has the ability to grow its dividend at above average rates for a long time. Time doesn’t fit that criteria and we think it is a candidate for a dividend cut.

Source:

Time Inc.: A Short Selling Case For A Paper Dinosaur (Seeking Alpha)