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Televised Dividends

May 21, 2020

Americans watch more television than any other nation—lockdown or not.

Television reaches nearly 89% of the total US population, while other media fall far short. Radio only has a 59% reach and newspapers a mere 36% penetration.

Even the internet, at 73%, doesn’t hold a candle to the good ol’ boob tube.

This means advertising revenue for television stations. From companies trying to sell us stuff to politicos trying to win our votes, television is the prime medium.

And advertisers know that not only do they reach more folks… they get more action.

Advertising industry studies show that nearly 40% of consumers first learn of brands that they buy from TV ads, compared to 9% from internet ads.

And for politicos, decisions are more likely to come from TV viewers; 37.2% cite those ads against a paltry 5.6% citing decision making from internet ads.

This all points to the obvious—television continues to control the vast majority of ad spending. And over the past few years, television has gone from 52% of all media ad spending to 54% of all ad spending in the US.

But there’s even more good news for the television ad market. If you look at local television websites, they’re gaining eyeballs and local online advertising revenues nationwide are up over 175.2% in the past several years. That’s multiples of the overall growth of internet ad spending.

Control the Remotes

Companies that own and control local stations and broadcasting spectrums are recognizing that not only is their business good… it’s getting better by expanding into markets around their local markets across the US.

Simply put, the more areas that a television broadcasting company controls, the better the bargaining power they have.

As companies expand and acquire local stations, a few things get even better. Costs come down. Local news and events take smaller teams of reporters, and those reporters and everyone else make less in a local market than in a national market.

Furthermore, the more local stations you own, the cheaper it is to buy content from the national networks for entertainment programming. And increasingly, the bigger television companies with more market controls are getting national networks to even pay them to put their content on local broadcasts.

The same goes for cable and satellite providers. Folks demand local news and content as well as network broadcasts that all have to flow through or from local television companies.

Gray is the New Green

Gray Television (GTN) owns local networks in 91 metro markets in the South, Midwest and Southwest US, with 150 local stations carrying all of the major US networks.

Revenue comes from advertising from televised broadcasts and those vital local internet webpages. And with the 2020 election underway, ad revenue should grow even more as we begin to move through the lockdown and COVID-19 mess.

Revenue is up by 95.7% on a trailing year basis. And thanks to all of the cost advantages of multiple stations, operating margins are running at a wide 22.5%. The company has piles of cash but does have a bit more debt (debt to assets are at 53.8%) thanks to some recent acquisitions.

But its debt is well sustained, giving it the ability to do further deals to broaden its reach. The stock is cheap at a 40% discount to its trailing sales and a 21% discount to book value, including all of the local licenses, which are irreplaceable.

Gray Television is Proven Growth

Gray Television (GTN) vs. S&P 500 Index Total Returns—Source: Bloomberg Finance, L.P.

The company continues to hoard cash to build up assets for further investment and station acquisitions with a retention rate of 100% of earnings. That means no dividend currently. But Gray continues to grow in the local television market and has proven it can deliver.

While I don’t prefer to invest without a current dividend, the company has provided a decade’s worth of proof that it can deliver genuine growth. It’s returned 410.4% during the past 10 years, which is 1.75 times the return of the S&P 500 Index, including the index’s meager dividends.

All My Best,

Neil George
Editor, Income Investor’s Digest & Profitable Investing
Author, Income for Life

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