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Why this ASX stock can sustain its ~10% dividend yield

Traditional media companies may be finally turning a corner after being clobbered on the head by online disruptors!

The Southern Cross Media Group Ltd (ASX: SXL) share price jumped 2.6% to $1.17 after posting a pleasing result in a tough environment.

The stock isn’t the only one in the media sector that’s outpacing the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index either. The Nine Entertainment Co Holdings Ltd (ASX: NEC) share price is also shooting the lights out as it surged 8% to $1.95 today.

Small growth reaps big rewards

Southern Cross reported a 0.5% increase in revenue to $661 million and a 3.1% uplift in underlying net profit to $76.2 million for the year ended June 30, 2019. Management also kept its full year dividend steady at 7.75 cents per share.

Throw in franking credits and that puts the stock on a hefty yield of around 9.4% even after today’s share price rally.

The top- and bottom-line growth may look anaemic but it’s an impressive result in my view given how sensitive advertising income can be to economic volatility.

Radio killed the TV star

The group’s Audio business, which encompasses its regional and metro radio stations and podcasting service, was a standout with revenue increasing 2.4% to $453.4 million. The result was bolstered by the federal election as political parties bombarded us with messages, and the Boomtown regional trade marketing campaign.

Its Television division didn’t fare as well with revenue falling 3.2% to $206.5 million, although the business still managed to lift underlying earnings before interest, tax, depreciation and amortisation (EBITDA) by 1.2% to $33.7 million thanks to some aggressive cost cutting measures.

“SCA’s Audio business grew during the year, outpacing the market. In metro markets, SCA’s Audio revenue increased by 4.1%, while the broader radio market declined by 0.5%,” said the group’s chief executive Grant Blackley.

“SCA’s regional radio revenue grew by 1.5%, boosted by the Boomtown initiative.  In both cases, these results were driven by strong growth in national revenues, which were up by 9.2% on the prior year.”

Foolish takeaway

The group didn’t give much away in terms of an outlook. Management noted that the advertising market remains challenging in July and August, although it’s still expecting single-digit growth and any growth is great news.

Management also commented that Podcasting and digital audio will continue to grow strongly year on year and group expenses were tracking below FY19.

That’s still a pretty bullish outlook in my view as it suggests that Southern Cross can sustain its generous dividend yield – and that alone makes the stock worth watching.

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Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. Connect with him on Twitter @brenlau.

The Motley Fool Australia has recommended Nine Entertainment Co. Holdings Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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