Thomson Reuters Corp. (TRI, Financial), a leading mass media company, operates across three verticals: financial and risk, legal and tax and accounting. The company also operates Reuters News, which provides news and information services to newspapers, television and cable networks all over the world.
The company's biggest strength is it generates most of its revenue through subscription services. In 2016, 86% of revenue was generated through subscriptions and 93% of revenues came from information delivered electronically. Thomson Reuters' revenue has been declining over the past several years and the company has been on an acquisition spree, buying more than 200 companies in the last 10 years.
After many years of declining revenues, Thomson Reuters is finally showing signs of a turnaround as the company reported flat growth for the second quarter, with results being hurt by a stronger dollar. On a constant currency basis, revenue grew 2% during the quarter. The company forecasted low single-digit revenue growth for 2017 and raised its full-year adjusted EPS outlook.
According to GuruFocus data, Thomson Reuters has increased dividends since 1993 and is currently yielding 3.02%. The company paid $41 million in dividends during the second quarter, which is 60% of its operating income. At the end of the quarter, it had $771 million in cash on hand and long-term debt stood at $6.32 billion. In February, Thomson Reuters announced a $1 billion share repurchase program, of which the company had used $578 million as of June 30.
While the debt load of $6 billion does look a bit high, the stable nature of its revenue stream will help the company pay and increase its dividends as its revenue grows over the next several years.
Thomson Reuters operates in a highly mature industry, so growth will remain extremely stable over the long term. The company will be focusing on allocating its cash flow to share repurchases and dividends as it has done in the past, which makes it an attractive investment for dividend investors.
Thomson Reuters is now trading at 17 times forward earnings, a reasonable valuation for a company that is just returning to growth. The 3%-plus yield makes it a great dividend play.
Disclosure: I have no positions in the stock mentioned above, and no intention to initiate a position in the next 72 hours.
