On the outside investing in the company whose chief holding is the iconic Yellow Pages phone book in Canada should be considered safe and stable investment. The Yellow Pages have been around forever in Canada, and I’m sure my dad still uses it faithfully. That’s the problem though… I don’t use it at all, only my dad does. This may help explain the recent downfall of Yellow Media Inc. (YLO). This is an example of a stock that was really hurt when it moved from the tax advantageous position of being an income trust, to having to pay taxes before distributions as a corporation. The company’s balance sheet was shaky to begin with, and now it has a .94 debt-to-capital ratio and shrinking revenues thanks to the digital age and their print-heavy medium of delivery.
If it seems like only a few months ago Yellow was on top of every dividend lover’s list, that’s because it is! Yellow (YLO) was paying a great dividend as an income fund, and it seemed fairly stable even taking into consideration the obvious future challenges that were approaching thanks to changing technologies. It had its IPO in 2006 and was chugging along with double-digit dividends every quarter (or at least close to) and investors were counting their dividend checks all the way to the bank (can we still use that metaphor now that instant banking has basically eliminated “walks” to the bank?). Yellow Media Inc. (YLO) does have an online business in Canada411.ca, but this hasn’t panned out like the company had hoped. Its line of Trader products that included monthly periodicals and websites that basically acted as buy-and-sells of every machine on the market had seen its profits shrink due to increased competition from Kajiji and Ebay amongst others. Due to the recent economic tough times for Yellow, it had to sell the Trader properties for 745 million just to stay positive on their balance sheet and avoid having their corporate bonds labelled as junk.
With all this negative news surrounding the print media company the stock was recently pushed down to a low of $0.25 a share (a far cry from its IPO heyday). Incredibly, at this point the company might actually be a bargain. Yellow Media Inc. (YLO) has obviously placed an absolute premium to attracting investors through a high dividend. As of right now their dividend is sitting at an unbelievable 27%! Obviously the company will likely cut this dividend in order to stabilize things and hopefully pay down some of their scary debt load. That being said, even if they cut the dividend in half (an absolutely drastic cut for a mature company) it still represents a great value. Most analysts I have read still rate the company as an average performer in the sector and the bottom line is that there are still many people out there like my dad who look forward to the Yellow Pages every year. The over-correction by the market might represent the perfect buying opportunity for this little dividend player. Once companies start to have the excess cash to invest in print advertisements again, Yellow Pages Inc. (YLO) may very well stabilize and turn back into a small little company that grinds out dividends to its shareholders. With so many older investors looking to park their money somewhere in an income-producing asset, I’m sure there are some that will see the stock as a calculated gamble that is worth a shot. Personally, I prefer a solid company with a history of raising its dividend that might cost me a little more to acquire, but is also something I don’t have to lay awake thinking about at night.
YLO Dividend Graph:
YLO Dividend Metrics:
|Ticker||Name||Price||Dividend Yield||Payout Ratio||INDUSTRY_SUBGROUP||DEBT_TO_MKT_CAP||Dividend Growth 5 years||Dividend Growth 1 years|
|YLO||Yellow Media Inc||4.42||14.71||148.58||Publishing-Periodicals||0.94||-5.15||-6.25|