STW Communications Group Ltd. (ASX: SGN) is due to report its full-year earnings on Thursday and analysts are getting excited at the prospect of a full-year dividend yield of 8.3% or 12% grossed up for franking credits.
Competitive Advantage
STW Communications is in the notoriously tough advertising and communications industry. Aside from experience and brand recognition, most advertising firms hold no competitive advantage over peers, making long-term outperformance difficult. The industry is changing, but STW is Australia's largest advertising and marketing services company and appears to be adapting to the new environment well. Analysts believe that STW's dominant position gives it a competitive advantage over peers that don't have the same brand recognition and experience.
Tough Environment
STW's net profit has steadily increased from $39 million in 2009 to $49 million in 2013, but this is only moderately above the $43 million recorded in 2007. Analysts believe that it's a matter of when, not if, earnings materially recover. In the meantime, STW is expected to deliver a yield in excess of 9% this financial year!
Huge Dividend
For the 12 months to December 31, the major Australian analysts are expecting STW to generate net profit of between $47 and $48 million, earnings per share of between 11.6 and 12 cents, and a dividend of between 7.8 and 8.2 cents per share.
If STW achieves these results, the shares will be trading on a PE ratio of just 8.1 and a dividend yield of 8.2%.
Outlook
Critical to the share price response on the day will be the new business report during the announcement. Analysts will be looking for growth in net new business, while earnings growth estimates will also be key.
Investors will be pleased if STW management guides for steady earnings and revenue growth in the mid-single digits over the next 12 to 24 months. If that can be achieved, analysts expect the dividend to improve towards 9 cents per share in the 2016 calendar year for a yield approaching 9.5% or 13.5% grossed up for franking credits.
