The stock market can serve as a powerful tool to diversify your income. Both dividends and capital appreciation are clear ways to profit from a stock. When considering which companies can deliver this fruitful combination, it's important to contemplate how profitable an organization is, the health of its balance sheet, and how it may perform longer-term.
ViacomCBS (VIAB) (PARA -2.22%) is a perfect example of a stock that can supplement your Social Security income through strong profit and cash flow plus favorable long-term prospects. Let's take a closer look.
Successfully enduring tough conditions
Image source: Getty Images.
ViacomCBS is a global media company with rights to a plethora of entertainment networks and sports. The pandemic ended some sporting events it typically broadcasts this year, like March Madness, and postponed others, while television and film production also slowed. Advertising revenue also declined considerably along with the rest of the industry due to COVID-19.
Despite all of that, Viacom is currently committed to its dividend, which yields a solid 3.22%, comparing favorably to the S&P 500's aggregate 2% yield. Its dividend payout ratio sits at a comfortable 26.16%, and the company is set to earn $4.06 per share this year despite a global pandemic.
This gives Viacom an extremely modest price-to-earnings multiple below 7.0, with room for improvement as sports and production continue to return. It also hints that Viacom will be able to continue paying its dividend going forward. The company does have a hefty $19.7 billion debt load, but strong free cash flow of $714 million in its most recent quarter is a great sign that it can continue handling interest payments.
A shift to streaming
ViacomCBS struggles with the reputation of being a legacy cable company in a world of cord cutting. Recent success with its subscription services points to its ability to overcome this. Its free, ad-supported streaming service called PlutoTV boasted 26.5 million monthly viewers at the end of the second quarter of 2020, up 61% year over year. While PlutoTV doesn't generate subscription revenue, it does generate advertising revenue for ViacomCBS and allows it to market its paid services -- CBS All Access and Showtime -- as well.
CEO Bob Bakish was hoping to hit 16.2 million paid subscribers between All Access and Showtime by the end of the year. The company realized the goal six months early (powered by 74% year-over-year growth in subscribers) and has since raised its forecast to 18 million paid subscribers by 2021.
This outperformance in paid subscribers comes even before Bakish's planned revamping of CBS All Access, which will be rereleased to the public next year. ViacomCBS will use its content from Nickelodeon, Showtime, BET, Paramount, Comedy Central, and much more for the service. The beefed-up content library will help it compete in the crowded streaming space, but there's another aspect of the planned relaunch that really has my attention.
CBS All Access is set to include Viacom's extensive sports broadcasting rights. This includes leagues such as the NFL, college football, college basketball, and a PGA Tour that has been setting viewership records since returning to competition. Viacom also has exclusive American streaming rights to European soccer's Champions League, the fastest-growing multi-billion-dollar sports organization in the world. The Champions League generated $4.57 billion in revenue powered by 38% top-line growth in 2019.
It's difficult to continuously generate an endless supply of hit shows. It is far easier to rely on enormously popular sports leagues to drive streaming subscriptions away from competition like Netflix. Sporting events in 2019 accounted for 88% of the most-watched events on TV; ViacomCBS will be leveraging its sports rights aggressively to make sure as many of those viewers as possible are using CBS All Access.
A solid choice
ViacomCBS offers those looking to supplement Social Security income a uniquely compelling combination of deep value and promising growth prospects. Continued strong cash flow and a low dividend payout ratio offer strong evidence that its healthy dividend will continue. Streaming success points to potential capital appreciation for the longer term. In terms of supplementing Social Security income, I believe investors would be hard-pressed to find a better option than ViacomCBS.
