I was sent a press release today concerning World Wrestling Entertainment (NYSE: WWE). It was one that I had missed. WWE, as many may know, has a pretty high dividend yield. Problem is, in this trading environment, some high dividend yields have proven to be predictors of disaster. As an example, were you trading Newcastle Investment (NYSE: NCT) by any chance? Then you know what I mean. For many stocks, high yields are merely a ticket to Dividend-Cut City. Or how about General Electric Company (NYSE: GE)? That company didn't cut its dividend, but management indicates that there won't be a raise in the dividend this year. It's been many, many years since GE refused to raise its quarterly payout. In many sad ways, it could be considered a cut.
Yet, here's something encouraging for investors in WWE. Management at the world's most famous wrestling institution has come out swinging, eager to alleviate the fears of shaken investors in a world bloodied and bruised by the financial crisis (hey, maybe that could be a new wrestling character, Financial Crisis, and his finishing move could be the Mark-to-Market). According to the press release, WWE intends on keeping its current quarterly payout for the long term. The very high yield of 9%, as far as execs are concerned, is doable.
What are income investors to make of this? Well, in my opinion, long-term investors might do well with WWE stock. Consider that we are not dealing with a financial company. Like GE, WWE didn't say it intends to raise the payout. But WWE has increased the dividend quite a bit since it first initiated the shareholder-friendly initiative. In this environment, the ability to keep a high yield is something that could be valuable.
However, WWE has had an issue with cash flow as of late (I covered it in a piece about the company's earnings back in August). WWE, as I had mentioned, is working hard to establish itself in the movie business, so cash flow is being utilized to do this. Granted, the movie business is risky, but I think it could pay dividends (literally and figuratively) down the line. Another thing income investors need to consider is that Vince McMahon and his family obviously want to be paid a lot in terms of dividends. It's quite possible that they will maintain their motivation to do everything in their power to protect the yield. Some execs don't care about quarterly payouts. As an example of this irritating phenomenon, I think Bob Iger of Disney (NYSE: DIS) could care less about the income equation of his company. Although I am not in McMahon's head, I think this may be a priority of his going forward. Since his stock hasn't panned out in terms of rampant capital appreciation, it looks like he wants to use a dividend strategy to entice long-term investors (as well as himself).
In summation, I think WWE might indeed be a good long-term dividend play. I still think that CEO Linda McMahon needs to do what she can to improve the current cash-flow imbalance. She needs to step up her game on this count. No one wants to see a challenged free-cash-flow scenario in the face of a high dividend yield, financial business or not. But I have to say, I own shares of Disney, and whenever I look at WWE's dividend yield, I do wonder sometimes if I'm in the wrong media stock. By the way, I would consider waiting for a bit of a pullback on WWE's shares before entering, but you can make the final decision on that count after much due diligence.
Disclosure: I own Disney, GE, and Newcastle Investment; positions can change at any time.