Paramount Has An Intriguing Dividend Yield (NASDAQ:PARA)

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by Anna Munhin Mar 26, 2023 News
Paramount Has An Intriguing Dividend Yield (NASDAQ:PARA)

It's mixmotive.

Introduction

The company paid a dividend of $0.96 per share. The yield is 4.7% based on the March 24th share price of $20.23. Paramount currently expects to continue to pay regular cash dividends and management is optimistic about the future, according to the 2022, 10-K. I think Paramount has the right management team in place to back up what they say in the 10-K. My thesis is that Paramount is a great place to invest your money.

The Numbers

The dividend of $0.96 per share worked out to $600 million per year for the next five years, according to the 10-K. The FCF was negative in 2022, so investors are worried that it will be negative again in 2023. The cash flow statement shows that more money has been spent on debt than on dividends over the last 3 years. Cumulative dividends on common stock have been close to $2 billion. The gross repayments of debt and paper have been $8,977 million cumulatively or $3.4 billion on a net basis. I like to look at the cash flow statement from the last three years to see what the future holds.

In terms of FCF, 2020 was a good year as Paramount hadn't yet started investing in streaming. Paramount had cash and equivalents of $834 million. They added $2,285 million in cash flow from operations, cash flow from investing, cash flow from financing and exchange rate impacts. They had cash and equivalents of over $3 billion at the end of 2020.

Streaming investments took their toll on cash flow from operations in the year 2021. The year saw a huge increase in cash and equivalents due to the proceeds from distributions, preferred stock and common stock. They added over a billion dollars in cash flow from operations, over a billion dollars in cash flow from investing, and over a billion dollars in cash flow from financing.

As streaming investments increased, the cash and equivalents dropped dramatically. Cash flow from operations, cash flow from investing, cash flow from financing, and exchange rate impacts all increased for Paramount.

The cash flow from operations decreased from $2,294 million in 2020 to $953 million in 2021. The component from discontinued operations are included in the subtotals. The CFO said in the 4q22 call that FCF was 500 million for the year and we can see how this is the case when we start with 142 million in cash flow from continuing operations.

Free cash flow was a use of $500 million for the full year, reflecting streaming investment and weakness in the advertising market. This figure also includes $289 million in payments for restructuring, merger-related costs and transformation initiatives. Consistent with our plans for peak streaming investment in 2023, we expect cash flow to continue to be impacted in advance of meaningful year-over-year improvement in 2024 when we return to positive cash flow.

The numbers are shown in the cash flow statement.

Cash flow statement

The cash flow statement was made in the year 2000.

It's important for Paramount to have the right CEO in order to keep the dividend going smoothly. According to the Unscripted book, Philippe Dauman wasn't the right person to run the company after he left.

Dauman, the consummate deal lawyer, had ascended to the top of Viacom promising more of the transformative acquisitions that had made the company what it was under Sumner. Instead, he spent $15 billion buying back stock, standing passively by while rival Disney bought Marvel and Lucasfilm, owners of the Avengers and Star Wars franchises, before paying $1 billion for a minority stake in a streaming service. Confronted with an industry in upheaval, Dauman played defense, clinging to what Viacom already had. As a lawyer, his first instinct seemed to be to go to court. Years prior, Viacom had sued Google in a self-destructive and ultimately failed effort to keep Viacom content off YouTube, which Google had recently acquired. When Shari asked Thomas Dooley, Dauman’s chief operating officer, for an explanation, he predicted YouTube would be out of business in a year.

[Kindle Book Location: 1,994]

According to the Unscripted book, former CEO Dauman was not liked by many in Hollywood. He was blamed for the exits of Comedy Central icons like Jon Stewart and John Oliver. The former CEO continues to be criticized in Unscripted.

Successful M&A deals are, by definition, one-time negotiations. If Dauman alienated his opponents, it hardly mattered. But Viacom had to deal with the cable operators repeatedly. In October 2014, when Viacom demanded a 50 percent increase despite declining viewership, internet service provider Suddenlink dropped Viacom’s channels rather than meet the demands. Sixty small cable companies did the same. Worse, Charter Communications, the country’s second-largest cable operator (where Sumner’s arch-rival John Malone was a board member), was threatening to follow suit.

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During the Morgan Stanley Tech Conference, current Paramount CEO Bob Bakish gave indications that he is the right person to protect the dividend and build for the future. Ben Swinburne of Morgan Stanley asked the right questions to get the long-term vision for the company. Content has always been the king in the world of streaming, according to the CEO. He is aware of the value that Paramount has with their content. He mentioned that news doesn't increase subscribers.

It looks like streaming providers have pricing power. The price of Paramount+ will be raised to $12 from the current $10 per month in the US. The ad-supported Essentials offering will go up $1 a month. He says that the peak investment year will be in 2023. He says that FCF will rise more than accrual earnings in the future. The CEO believes that attracting low-quality subscribers by offering deals like $0.99 for a year doesn't do the company any good in the long run The CEO says they have always been 100% focused on the path to profitability. He says that the net additions will not be as high in the first quarter of the year. The losses from streaming and soft ad markets are temporary, according to him. He mentioned the $3 billion in cash and equivalents on the balance sheet when we looked at the last few years' cash flow statement. Simon & Schuster was on the verge of being sold for $2 billion until the sale was stopped. The comments the CEO made at the end of the Morgan Stanley conference caught my attention.

So we’ve got levers to pull through it. And we will do that. But the most important thing is we are creating this network of the 21st century. And network economics have always been incremental to studio economics, and they will ultimately be in the streaming space again. Again, we talk to TV media like margins - but [we’ve] got to invest in it. And that includes in '23. So we are, we're being prudent. We're cutting costs in different places strategically, et cetera, are not one size fits all. But we have the levers to manage through it, and we will. And we're going to come out the other side of this in '24, where we return to positive free cash flow and there is significant earnings growth. And then it's uncoiled spring, then it goes.

Paramount has a CEO with positive vibes and a CFO who is optimistic about the future. At the FebruaryDeutsche Bank Internet & Telecom Conference, Senior analyst BryanKraft asked key questions such as "What is the thought process?" and "How do I understand it?" The CFO said that Paramount wanted to invest in streaming in a way that would deliver profitability and margins in a reasonable period of time. He said that it isn't necessary to have exclusive streaming rights, and that they have always believed in advertising. They make extra revenue by not demanding exclusiveness with all the content. They take a partnership approach in other markets but they are fully owned in some flagship markets. CFO Chopra responded to a question about FCF and the sustainable nature of the dividends.

So if you think about what has been happening with free cash flow for Paramount, it's overwhelmingly driven by 2 things: number one, the investments that we've been making in streaming; and number two, the broader advertising marketplace. And what is important about both of those things is they are fundamentally short term in nature, right? The streaming investment as you well know, we're now at our -- or '23, I should say, will be our year of peak losses in D2C. So that means as we come out of '23, we will see growth in both earnings and cash flow. And in fact, I think the growth in cash flow will be larger than the growth in earnings because of the dynamics around content amortization. So we'll see a nice recovery there. And then on the ad marketplace, that is a cyclical thing. We're a few quarters into a downturn, and we continue to look to recovery in the back half of this year. So the combination of those 2 things is really what gives us the confidence that we'll be able to deliver meaningful growth in earnings and free cash flow in 2024 and beyond.

The CFO said they have the ability to bridge things with respect to the dividends.

The management wants to have annual revenue of $9 billion by the end of the decade. I wouldn't rule out this because revenue for this segment has increased 170% since 2020. It is nice to take a look at past financials forNetflix as they can give us one lens as to the types of possibilities for Paramount DTC in the future.

It's on the internet.

The FCF is a football team.

It's an income.

There is revenue.

There is a film called Paramount.

DtC.

"OIBDA"

There is revenue.

A year ago.

It's $ 16.

The price is $ 229.

$4,350.

A new year 2020.

A total of 1,815 dollars.

A year ago.

The price was $127.

A number of dollars.

A total of $5,500.

There will be a new year in 2021.

A sum of money

There is a cost of 3, 327.

A new year.

$

There is a cost of $ 304.

$7,780.

There will be a new year in 2022.

The cost is 1,819.

$4,905.

A new year.

The cost is 1,660.

It's a little over $400.

A total of 8,831 dollars.

A new year.

There is a cost of 2,020.

There is a cost of $ 825.

There is an amount of 11,693.

This year

There is a cost of 3,020.

A total of 1,605 dollars.

A total of 15,794 dollars.

A new year.

A sum of money

2,604 dollars.

A total of 20,156 dollars.

A new year 2020.

There is a cost of 1,922.

A total of $4,585.

A total of 24,996 dollars.

There will be a new year in 2021.

$.

The price is $6,195.

A total of 29,698 dollars.

There will be a new year in 2022.

A total of 1,619 dollars.

There is a cost of 5,633.

A total of 31,616 dollars.

The benefit of being the first-mover was that they didn't see much competition. As a result, they have a larger number of long-term subscribers that are less likely to leave than competitors who are newer to streaming. The sales and marketing line of the income statement is what causes Churn to be fought with. Increased competition and currency fluctuations made it difficult for the company to make money. The operating margin for the company increased from 5% in 2013 to 21% in 2020. I don't think Paramount will reach an operating margin of 21% but I think they can eventually reach 10% or more. In the 4q22 call, they talk about the margins.

Since day 1, we have executed against a plan to build a profitable streaming business, one that achieves TV Media-like margins. To get there necessitates an investment phase. And now in 2023, entering the third year of Paramount+ in the marketplace, we are at peak investment.

Valuation

TV Media is making money at the moment, according to management. For the full year of 2022, the total revenue was $4,902 million, of which $460 million came from advertising and $936 million from subscriptions.

Segment results

The results of the segment for the next 10 years.

Streaming companies exist in order to make money regardless of the size of the audience. Paramount is aware of this reality and they are working hard to move to profitability.

Paramount is worth more than $30 billion if they can get back to operating income levels we saw in 2020 and 2021. The competitive landscape needs to be rational, the decline oflegacy businesses needs to be gradual, and the advertising business needs to recover soon. A shares and B shares are combined for a total of 650 million shares as of February 13, 1993. A market cap of $13.2 billion is given by the March 24th share price of $20.23 The mandatory convertible preferred stock had an aggregate preference of $1 billion according to the 10-K. The enterprise value is about $30.6 billion which is $17.4 billion higher than the market cap due to the $1 billion convertible preferred plus short-term debt and long-term lease liabilities.

The material in this article should not be used as an investment recommendation. Do your own research before buying a stock.