What's Behind The Washington Post Co.'s Dividend, Stock Buyback

By: Mark Fitzgerald Not long ago the announcement of a quarterly stock dividend by a newspaper company was so routine it often never made it into print or Web sites. But over the past year nearly every publicly traded newspaper publisher has eliminated its dividend or reduced it to a token amount to concentrate -- often at the direction of its lenders -- on reducing debt.

So Thursday's announcement that The Washington Post Co.'s board of directors had authorized an INCREASED annual rate for its stock dividend was something of a shocker.

The Post Co. simultaneously bucked another industry trend by announcing a stock buyback authorization.

That, too, was once a common newspaper industry practice. And like offering a dividend, buybacks predictably buoyed share prices. In fact, Wall Street commonly urged publishers to stop sitting on all their cash and use it for either acquisitions or return it to shareholders in the form of buybacks.

But when the industry tipped into recession and cash flow tightened, newspaper companies discovered both strategies had left them with more debt than they could handle. And their share prices tanked anyway.

Now, with speculative-grade, or "junk," credit ratings, newspaper companies face tight limitations on their loans or credit facilities that often require them to stop paying dividends, and forbid share buybacks.

The Post Co., though, has avoided debt and kept an investment-grade rating. Directors must be thinking that the twin strategies of dividend and buyback could revitalize a stock they know doubt regard as undervalued.

While other newspaper stocks have rebounded from the sickly lows of the winter of 2009, when some fell below $1 a share, The Post Co., which trades on the New York Stock Exchange under the symbol WPO, has not had any real bounce despite its ballyhooed diversification with the Kaplan education unit cash cow.

Consider the spectacular gains of its peers. Based on Thursday's close, Gannett Co.'s share price is up 117% over the past 52 weeks. A.H. Belo, a small newspaper pure-play has gained 384% just in the last six months. If you were brave enough to scoop up The McClatchy Co. shares when they were trading around 80 cents a year ago, you'd have a 593.4% gain based on Thursday's close.

And the Post Co. stock? It's up just 4.9% in the past 52 weeks. It closed Thursday up less than 1% at $446.82. Two years ago, on Jan. 22, 2008 that share of WPO cost $749.25.

The Post Co. is the only newspaper company that can attempt to revive its share price with a dividend and buyback, says Mike Simonton, the media analyst for the big credit ratings agency Fitch Ratings.

"Few if any other newspaper groups have flexibility to buy back shares," he says. "WPO is an outlier in that print products constitute a small portion of the overall profit mix and they don't carry a lot of debt. We don't expect this to start a trend of shareholder friendly activities in the newspaper space."

(For the financial details on the Post Co.'s dividend and buyback announcements, check out E&P's business-oriented Fitz & Jen blog.)