Is Corus Entertainment Inc.’s 8% Dividend Sustainable?

Corus Entertainment Inc. (T.CJR.B) is one of the companies many income-focused investors have looked to for yield in today’s low-yield equity environment. Currently, Corus shares yield 8.3%, a yield which has held relatively stable over the past year as the company’s stock price has also flat lined over this time frame.

Any time a stock offers investors an 8% yield, questions arise as to the long-term safety of the dividend as well as the strength of the underlying business. The media and entertainment business is one which has been in hot water for a long time, with headwinds coming from many directions, challenging the profitability of traditional media companies across Canada and North America.

In the case of Corus, the TV and Radio business in Canada remains consolidated and somewhat stable, despite new rules recently put in place by the CRTC in which companies providing cable packages have been forced to trim down packages including a number of ancillary channels (including some provided by Corus) to just a basic bare-bones package, allowing consumers to pick and choose additional channels for a fee.

The rules went into place in early 2016, and since that time the share price of Corus has dropped approximately in half, leading to the elevated dividend yield and payout ratio higher than 100%.

While Corus has improved its earnings and free cash flow in previous quarters, the company is still not producing enough free cash flow to support its dividend, and is therefore one of the companies I will be monitoring moving forward. Any investor considering adding a small position of Corus should be extremely careful.

Invest wisely, my friends.