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Market Update

Earnings on Tap: Viacom

The company has enough cash in place to increase its dividend without harming itself.

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 Viacom (VIAB) is slated to release fiscal first-quarter results Thursday ahead of the bell. According to Wall Street analysts, the company is likely to report earnings per share of $0.91 per share compared with $0.38 per diluted share reported in the corresponding period a year ago.

In November, the entertainment conglomerate reported fiscal fourth-quarter earnings that exceeded analyst estimates despite a drop in revenues. Adjusted earnings per share rose sharply by 14% to $1.21 while operating profit increased 13% to $1.05 billion. However, revenues declined 17% to $3.36 billion.

Viacom owns a number of well-known cable networks, including MTV, Nickelodeon, and BET, which are very popular with traditionally hard-to-reach audiences.

Earlier this month, the company declared a quarterly cash dividend of $0.275 per share on both its Class A and Class B common stock. Morningstar analyst Michael Corty applauds the company's decision to start paying a dividend and repurchase shares. 

Chasing growth through acquisitions has been a poor use of capital in the past, with Harmonix (maker of Rock Band) a recent example, writes Corty. Initiating a quarterly dividend is a good start, according to Corty, but the company generates enough free cash flow to increase the dividend without harming its financial health.

The stock has jumped more than 11% since the start of the year and is presently trading slightly above Corty's fair value estimate.

Gazala Parveen does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.