Buy consumer stock Corus for growth and income

Corus Entertainment’s shares are up. We expect its price to continue to recover. That’s because the company’s earnings are expected to rebound next year. The shares are likely to continue to yield a lot. And the share price is attractively low. Canadian consumer stock Corus remains a buy.

We regularly review Toronto-based media and entertainment stock Corus Entertainment (TSX─CJR.B). Since we published our January 22 issue, its shares have recovered by 12.4 per cent. The company is expected to earn more next year. This cyclical consumer stock remains a buy for a long-term share price recovery and attractive dividends.

Corus recently acquired assets from Shaw Media. It now operates 45 specialty TV services; 15 conventional TV stations; 39 radio stations; “a global content business, digital assets, live events, children’s book publishing, animation software, technology and media services.” The company has many stations geared to women who are the decision makers on spending in many families. This makes Corus more attractive to advertisers of consumer goods and services.

Two independent advisers supported the takeover

Institutional Shareholder Services, known as ISS, is an independent proxy advisory research firm. Many major institutional investors rely upon its analysis and recommendations in deciding how to vote their shares. ISS advised Corus shareholders to support the acquisition of Shaw Media assets. Independent proxy advisory research firm Glass Lewis concurs. It, too, advised Corus shareholders to support the acquisition. Both firms see the transaction as beneficial to Corus.

In the year to August 31, Corus is expected to earn $1.18 a share. This would represent a drop of nearly a quarter from earnings of $1.57 a share last year. Based on this year’s estimate, the shares trade at a reasonably-low price-to-earnings, or P/E, ratio of 10.3 times.

But in fiscal 2017 (which starts on September 1) Corus’ earnings are expected to rebound by 18.6 per cent, to $1.40 a share. Based on this estimate, the shares trade at an even better P/E ratio of only 8.7 times. That’s partly why we disagree with the consensus recommendation of ‘hold’ by three analysts.

Corus pays monthly dividends of nine-and-a-half cents a share. This works out to a yearly $1.14 a share. The yield of 9.4 per cent suggests these dividends are unsustainable. But next year’s earnings per share are expected to significantly exceed the dividend. If the company uses its higher earnings to continue to pay the dividend, income-seeking investors would likely bid up Corus’ shares. If it reduces its dividend modestly, it’s likely to still yield a lot.

Earn two per cent more: enroll in Corus’ DRIP

Corus also offers a DRIP (or Dividend Re-Investment Plan) in which you can reinvest your dividends into new shares at a two per cent discount to their market price. This puts you ahead right away.

When Corus acquired those media and entertainment assets from Shaw Media, we upgraded the stock to a buy. But ours is a minority view. As we point out earlier, three analysts see the stock as a hold.

This might cause you to worry about investing a lot of money at what could be the wrong time. But reinvesting dividends is easier on the nerves. It lets you profit from what’s known as ‘dollar-cost averaging’. Invest fixed sums at regular intervals and you buy most shares at fine prices.

 

The Investment Reporter, MPL Communications Inc.
133 Richmond St. W., Toronto, On, M5H 3M8, 1-800-804-8846

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