High-yield dividend stocks often get a bad rap for being risky, but that’s not always the case! Just because a stock offers a high dividend doesn’t automatically mean it’s in trouble or too risky for your portfolio. Sometimes, companies offer high yields because these are mature businesses with steady cash flows but limited growth prospects. So, the stock rewards investors with bigger dividends. If the fundamentals are strong and the dividend is sustainable, high yields can be a great way to boost your income without extra risk. And this could be the case with this solid stock.
Yellow Pages
Yellow Pages (TSX:Y) might bring back memories of those thick directories we used to flip through. Yet the company has evolved quite a bit from its phonebook days! Now, it’s a digital marketing business that helps small- and medium-sized businesses connect with customers online. With services like online advertising, website development, and social media management, Yellow Pages has transformed into a more modern, tech-driven company. While it may not be a household name anymore, it’s still around, quietly playing a role in the Canadian business landscape.
Interestingly, Yellow Pages also happens to offer a high dividend yield, thus making it a potential gem for income-focused investors. Despite its shift from print to digital, it’s managed to maintain steady revenue streams and reward its shareholders. If you’re looking for a stock that delivers a steady income without all the excitement (or drama) of trendier tech companies, Yellow Pages could be worth a closer look.
Into earnings
Not to say there haven’t been issues. Yellow Pages recently reported a revenue decline of 11% year over year for the second quarter of 2024, bringing in $55.8 million. The company faces challenges in both its digital and print services, with digital revenue dropping by 10.2% and print revenue decreasing by 13.6%. Despite this, the company remains focused on expanding its sales force. This has helped boost new accounts by 17% compared to the previous quarter. It’s also maintaining a solid rate of customer retention, even though the overall economic environment is challenging, particularly for small businesses in Canada.
On the earnings side, Yellow Pages saw its adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) margin decrease to 26.5%, down from 35% in the same period last year. Net income also dropped to $7.6 million, compared to $12.7 million last year. However, the company continues to generate solid cash flow, with $34 million in cash on hand. Plus, it remains committed to funding its pension plan and paying out dividends. For income-focused investors, Yellow Pages still offers a dividend of $0.25 per share, thus making it an appealing option despite the revenue pressures.
Looking ahead
Yellow Pages looks like it could be an interesting investment, especially based on its current valuation metrics. With a trailing price-to-earnings (P/E) ratio of just 3.98 and a forward P/E of six, the stock appears relatively cheap. This suggests that investors are cautious about the company’s growth prospects. However, these low multiples can also indicate an undervalued opportunity. Particularly for those who believe Yellow Pages can maintain its profitability and navigate the challenges of a shrinking print business. Its price-to-sales ratio of 0.68 and price-to-book ratio of 2.19 further reinforce the idea that the stock may offer value, especially with its strong cash flow and cost-management efforts.
On top of that, Yellow Pages is offering a forward annual dividend yield of 10.3% as of writing. This is quite appealing for income-focused investors. With a payout ratio of just 36.89%, it seems that the company is managing its dividend responsibly, leaving room to maintain or even grow it. While revenue has been under pressure, the company still generates healthy cash flow and maintains a solid balance sheet. So, if you’re looking for a high-dividend stock with a potential value play, Yellow Pages might be worth a second look.
