Time Warner Cable Fends Off Rising Programming Costs


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Time Warner Cable 's ( TWC ) stock and dividend growth has held up well even as rising programming costs threaten to squeeze profits.

The No. 2 cable TV operator behindComcast ( CMCSA ) has increased its dividend steadily since regular quarterly payouts began in 2010. The latest increase was declared in January, a 16% hike to 65 cents a share. The annual dividend of $2.60 per share is good for a yield of 2.3% at the current share price, just shy of the S&P 500 average of 2.5%.

Meanwhile, the stock is up 15% so far this year, also just below the S&P's 18% increase. The stock has formed a cup-with-handle base with a 116.10 buy point. However, the handle is in the lower half of the pattern and the stock's Relative Strength line has been going sideways, which doesn't bode well.

Time Warner Cable has been buoyed by reports thatLiberty Media ( LMCA ), the biggest investor in Cable TV operatorCharter Communications ( CHTR ), has approached the company about a merger.

A tie-up could help Time Warner Cable gain leverage in talks with content providers such asCBS ( CBS ), which recently cut off programming to the cable TV operator in a dispute over retransmission fees. CBS restored programming last month after winning a big fee increase.

Nevertheless, Time Warner Cable's profit is expected to rise 16% in Q3 from a year earlier to $1.64 a share. That would mark the second-straight quarter of earnings acceleration. Revenue is expected to edge up 3%.

Time Warner Cable's three-year Earnings Stability Factor is 2 on a scale of 0 (most stable) to 99 (least stable). Also, operating cash flow rose to $17 a share in 2012, nearly triple the earnings per share that year. Stable profits and strong cash flow bode well for continued dividend growth.

But the company's long-term debt-to-equity ratio is very high at 346%, making the company vulnerable to any rise in interest rates.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing Investing Ideas
Referenced Stocks: CBS , CHTR , CMCSA , LMCA , TWC

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