TV and radio company Corus Entertainment (Corus Entertainment Stock Quote, Chart TSX:CJR.B) has had a rough ride over 2018 but has the stock finally hit bottom or is there more turmoil to come?
It’s still anyone’s guess, which is part of the problem, says Kash Pashootan of First Avenue Investment, who argues that investors shouldn’t get sucked in by the attractive dividend. Corus started out the year within the $10 to $15 range it had inhabited since the back end of 2015, but the wheels promptly fell off in January as the company revealed a drop off in advertising revenue and investors reacted to concerns over the future of TV in the age of streaming video. The stock suffered another big drop in June when Corus announced a quarterly loss of $936 million and slashed its dividend by almost 80 per cent.
Now trading around $4 and change and still sporting a hefty dividend yield of 6.5 per cent, investors may be wondering whether Corus is now a good play. Pashootan, CEO and chief investment officer at First Avenue, says it’s too early to tell.
“We’re not technical investors by any means but what the chart is telling you is that the market hasn’t stabilized in terms of understanding what Corus looks like three, four, five years from now,” says Pashootan to BNN Bloomberg . “So if you take the compelling dividend yield out of the equation, I think many are scratching their heads at finding reasons why it’s attractive to put money into Corus.”
Corus’ TV advertising revenue fell by five per cent over its fiscal third quarter this year, with CEO Doug Murphy admitting that changing industry dynamics are part of the problem. “Our industry is in flux, and we need to adapt and respond,” said Murphy in a June conference call. “We’ve adopted a long-term plan we believe will preserve our ability to compete.”
Pashootan says that income investors shouldn’t be lured in by Corus’ dividend, which could be cut further at any time, he says.
“Don’t let that high yield seduce you into buying a name,” he says. “The yield is not guaranteed and we’ve seen that with Corus cutting their dividend and many other companies as well. Regardless of what you earn on the dividend, it’s important that the business itself is one that makes sense and that you want to be invested in because what you earn on the dividend can be offset by what you lose plus some on the share price.”
“For us, being dividend growth investors but more than anything being investors, we’re looking at all facets of it and we’ve stayed away from Corus,’ he said.