Journal Communications saw its stock price decline Thursday after Zacks Investment Research predicted that the company will cut its dividend sometime this year to conserve cash. At 32 cents annually, the stock has been yielding a hefty 17.5%. Journal isn’t due to report 2008 results for its newspapers and radio/TV stations until February 12th.
“We think the company will not likely meet the Consensus estimate of $0.15 – our estimate is $0.12 and the Street low is $0.11. JRN’s free cash flow, which had been increasing as capital expenditures shrink faster than revenue and operating cash flow, is set to decline, in our opinion,” Zacks said in a public brief on its full analysis.
“JRN’s revenue decline accelerated faster-than-expected in October and November, a trend we think will likely continue as the recession deepens and political advertising evaporates. In turn, we think free cash flow BEFORE dividends, which covered cash dividends by a multiple of 1.6x in 3Q08, will contract, potentially endangering the company’s dividend later in 2009. JRN’s plummeting stock price has propelled its dividend yield to a very lofty 17.5%,” Zacks said.
“We believe the company could continue to pay the dividend through 2009, given the company’s manageable leverage (debt is 32% of capital and 2.5x ttm EBITDA) and excess, albeit declining, free cash flow, but we think eventually it will be cut this year to conserve cash,” the research firm told clients.
“Investor sentiment towards the publishing sector has darkened as negative estimate revisions continue unabated across the industry and improvement hinges on the economy stabilizing, to which there is no visibility,” Zacks added.