Time Warner Cable Offers Steady Growth, Nice Dividend

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Time Warner Cable ( TWC ) has been rising on merger rumors. Perhaps more significantly, it offers stable profit growth, strong operating cash flow and a solid dividend.

The stock soared 8% to a new high in huge volume Friday after CNBC reported thatLiberty Media ( LMCA ) approached the cable TV operator about a merger. The stock pulled back Monday but still held on to most of the prior session's gain and remains above a 99.52 buy point.

The stock is up 4% so far this year, underperforming the S&P 500. But it's up 30% from a year ago, ahead of the S&P's 22% gain.

Time Warner Cable began offering a regular quarterly dividend in 2010 and has increased it steadily. In January, it raised the quarterly dividend by 16% to 65 cents a share. That's equal to $2.60 a share annualized, good for a yield of 2.6%.

The company's profit growth has slowed the past two quarters, from a healthy 27% increase in the third quarter of last year, to subsequent gains of 14% and 8%. That's still not bad for a big-cap stock with $21.4 billion in 2012 revenue.

Profit for the quarter ending this month is seen picking up 11% to $1.65 a share.

Perhaps more importantly, Time Warner Cable's three-year earnings stability factor is 2 on a scale of 0 to 99, with 0 being most stable. Furthermore, operating cash flow is exceptionally strong, rising for two straight years to $17 a share in 2012, the highest in years and more than double the company's earnings per share that year. Such strong cash flow implies that dividend payments are secure.

On the downside, Time Warner Cable's long-term debt-to-equity ratio is very high at 346%, making the company vulnerable to any increase in interest rates.



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



This article appears in: Personal Finance , Investing Ideas

Referenced Stocks: LMCA , TWC

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