WaPo Enhances Returns - Analyst Blog

The Washington Post Company (WPO) recently increased its quarterly dividend following the footsteps of The McGraw-Hill Companies Inc. (MHP), a publisher and provider of financial information and media services, who raised its quarterly dividend by 6.4% to 25 cents.

Washington Post raised its annual dividend by 4.4% to $9.40 from $9.00, reflecting the company's sound financial position and well-defined future prospects. The increased quarterly dividend of $2.35 per share is payable on February 11, 2011, to stockholders of record as on January 31, 2011.

The announcement reflected the company's strategic approach to utilize its free cash to boost shareholders' returns.

However, a significant headline in the media was the news of Warren Buffett stepping down from the board of the company after the expiration of his tenure in May 2011. His retirement comes after the departure of another high-profile board member Melinda Gates in November 2010.

Buffett, the largest shareholder of Washington Post, joined the company in 1974, and was in the board since then, except for one eight-year hiatus, when he served as a director of Capital Cities, a media company.

Buffett's retirement was not surprising, as he has affirmed his glumness about the newspaper industry in the past, and is also concentrating on taking steps for the transition at Berkshire Hathaway. However, he will be available for consultation even after his departure from the board.

Our View

The Washington Post's diversified business mix positions it to sustain a growth momentum. The company's third-quarter 2010 earnings of $11.24 per share rose 57% from the prior-year quarter, reflecting growth across its Education, Television Broadcasting and Newspaper divisions.

The company also spruced up its role as a publisher with the sale of Newsweek magazine, which had long been grappling with shrinking advertising revenues.

Currently, we have a Neutral rating on the stock. However, Washington Post holds a Zacks #2 Rank, which translates into a short-term Buy rating.

 
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