Time Warner Cable (
) has been rising on merger rumors. Perhaps more significantly,
it offers stable profit growth, strong operating cash flow and a
The stock soared 8% to a new high in huge volume Friday after
CNBC reported thatLiberty Media (
) 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.