Yesterday, the Board of Directors of Time Warner Cable Inc. decided to hike its regular quarterly dividend from 56 cents per share to 65 cents per share, a significant jump of 16%. The revised quarterly cash dividend will be payable on Mar 15, 2013 to stockholders of record at the close of business on Feb 28, 2013. In the last three years, the company is systematically enhancing its shareholders’ wealth either through a share repurchase program or by increasing dividend rate.
Time Warner Cable reported mixed financial results for the fourth quarter of 2012. Although net earnings surpassed the Zacks Consensus Estimate, revenue fell below the same. Nevertheless, the company demonstrated an impressive annualized progress primarily attributable to: (1) new acquisitions of NewWave, NeviSite, and Insight, which have enhanced the company’s financials. As a result, the growth rate of revenue exceeds the growth rate of operating costs (2) steadily growing demands for residential high-speed Internet services (3) exceptionally solid performance by its Business Services segment, and (4) growing political advertisements.
Despite these positives, Time Warner Cable has given a lukewarm outlook for fiscal 2013. Adjusted earnings per share for fiscal 2013 are expected to be in the range of $6.33–$6.6, up about 10–15%. This guidance is far below the current Zacks Consensus Estimate of $6.90. Consequently, the stock price of Time Warner Cable fell $11.36 (11.28%) yesterday. This was the company’s highest stock price fall in nearly four years. Management cited that rising programming costs, especially for sports channels and an expected dip in political advertisement are the primary reasons for this weak forecast.
Under this scenario, a hike in dividend may strengthen the stock price. Time Warner Cable currently has a Zacks Rank #3 (Hold). Other major pay-TV service providers include Comcast Corp. (CMCSA - Analyst Report) , DIRECTV Inc. and DISH Network Corp. (DISH - Analyst Report) . All these three stock currently have a Zacks Rank #3 (Hold). Comcast and DIRECTV will dealer their fourth-quarter 2012 financial results on Feb 13 and 14 respectively, while DISH is yet to declare its fourth-quarter 2012 earnings date.