Corus Entertainment Inc. (TSX:CJR.B) has been one of Canada’s top dividend stocks since being spun off of Shaw Communications Inc. (TSX:SJR.B) in 2000. But with shares down nearly 50% from 2014 highs can investors count on a dividend that now yields 8.9%?
Thus far in the company’s fiscal 2016 the answer is yes. Through the first three quarters of the year, Corus generated $126.8 million in free cash flow while paying $64.6 million in dividends to shareholders. That’s a payout ratio of just over 50%, a very sustainable number.
But Corus just closed on a deal to acquire Shaw’s media business for $2.65 billion on April 1,meaning results could be much different going forward.
According to projections when the two companies agreed on the deal, Corus would see free cash flow increase more than 100% to approximately $430 million once all synergies are complete.
The only problem is Corus more than doubled its total share count to help pay for the deal, going from just over 88 million shares to almost 194 million.
Based on rough calculations, the dividend should still be fine, with the company projected to keep free cash flow at more than $2.00 per share, easily being able to afford the $1.14 per share annual dividend and interest on debt issued to help pay for Shaw’s assets.
Still, any dividend of nearly 9% should be viewed as at least a little risky. If the big acquisition doesn’t really work out for Corus, the dividend will be the first casualty. This doesn’t look likely at this point, but it’s still something investors must keep in the back of their minds.
