ATML Earnings Action

World Wrestling Entertainment Inc. (WWE) has been thrown into the ring of accidental high yielders, a label used to describe companies whose dividends have become increasingly handsome as their share prices have been decimated. WWE recently announced that it would pay its regular quarterly dividend of $.36 a share on its common stock payable on March 25 to shareholders of record on March 13. Because the stock price has been knocked down in a stone cold type of way, off about 50% to $9.61 from last year’s peak of $19.86, much like the rest of the market, the yield has jumped to 14.8%. Impressive, but is it sustainable? WWE thinks it has more than a fighting chance and remains publicly confident that it is, most recently stating in its Feb. 24 conference call its commitment to the dividend via comments made by CFO George Barrios, and even in a company issued press release on Feb. 23 in which its rich dividend yield was promoted to the investment community. Management should definitely see to follow through as it will be in their best interest. After being quite public on the issue, a dividend letdown would set up for a major breach of trust and make for an investor relations mess that would greatly hurt credibility. The problem, though, is that paying out a large sum of cash in dividends something similar to the tune of $81.4 million a year (that’s what it spent last year), is costly, especially when free cash flow has slipped as expenditures have risen. To put things into perspective, the annual dividend of $1.44 a share is double its expected earnings per share. But the good news is that WWE has little long term debt, and can tap into its cash and investment balance that is still greater than $200 million. And to avoid draining that reserve, the management team has aggressively begun to slash spending with such measures as cutting its work force by 10% and planning to reduce its cost base by $20 million in 2009. It plans to get its free cash flow number back to 2007 levels. It’s something doable until earnings grow and are able to absorb the cost of the dividend, avoiding any substantial dividend cut in the intermediate term. With all this in mind, combined with earnings stability in the form of a recent n in-line quarterly report, WWE represents a decent value proposition.