At Nearly 10%, This Dividend May Be Too Good to Be True

A double-digit dividend can be very enticing for income-focused investors; such a yield, while traditionally uncommon among non-micro cap companies, does rear its head occasionally among companies which have the ability and the intention to maintain a higher than average dividend yield, for a variety of reasons.

Corus Entertainment Inc. (TSX:CJR.B) is a Canadian media and entertainment company which has maintained a relatively high yield in recent years.

While Corus’ share price has decreased by more than 10% year to date, investors have seen a rebound from lows experienced two years ago as the market has begun to positively ascribe value to the streamlining of operations by Corus’ management team.

The company has sold off many of its secondary and tertiary business lines, choosing to focus on children’s programming and the woman/home segment of the market.

With a relatively stable balance sheet, a number of analysts have indicated that Corus is likely to be able to afford paying its dividend for some time.

While long term risks to the company’s cash flows remain (i.e. the sector wide cord cutting phenomenon and pick and pay phenomenon in Canada specifically), picking up a juicy near double-digit dividend in expectation of cash flow improvement is a strategy which can reasonably be seen as compelling for some contrarian investors.

With the market generally not factoring in cash flow growth, reflected in the company’s high yield, I remain skeptical as to the ability of Corus to experience meaningful capital appreciation in the near term.

While a dividend cut may not be on the horizon, I just don’t see enough value in this name yet to warrant an investment at current levels.

Invest wisely, my friends.