Funds Find Quality in Cable Stocks

Repurchases and Dividends Make Comcast, TWC a Hit With Institutional Buyers

By Mike Farrell -- Multichannel News, 2/20/2012 12:01:00 AM

For most of the top media mutual funds, the fourth quarter was an opportunity to load up on quality stocks in the MSO sector, with most of the major players beefing up their positions in Comcast, Time Warner Cable and DirecTV Group.

Miller Tabak media analyst David Joyce said that investment funds are largely attracted to companies with strong returns on capital. And with robust share repurchase programs and recently hiked dividends, Comcast and Time Warner Cable fit the bill.

Comcast and Time Warner Cable have been at the top of most analysts’ best buy lists for the year, based on strong operating fundamentals and their ability to return cash to shareholders. Last week Comcast increased its annual dividend by 40% and said it would spend $3 billion this year repurchasing its stock. Time Warner Cable increased its quarterly dividend by 17% in January, while announcing a $4 billion share repurchase authorization. DirecTV may not be paying dividends, but it has been the fastest grower among media stock s, adding 632,000 net new subscribers in 2011.

Joyce added that with the recent turmoil in the global markets over the European debt crisis, “quality has been the name of the game.”

FUNDS’ TOP PICK: COMCAST

Multichannel News tracked the yearend filings of four top media funds (Capital Research Global Investors, Capital Guardian Trust, Janus Capital Partners and Franklin Resources). With most of the funds, Comcast was by far the most popular stock — three of the four funds increased their positions in the largest MSO in the country, except for Janus, which sold a small portion of its shares.

At Capital Research Global Investors, the investment fund started by media legend Gordon Crawford, Comcast was the most significant buy at 20 million shares. The fund sold about 2.2 million shares of DirecTV — but kept a sizable position at 61.3 million shares, or 8.9% of the satellite giant’s outstanding stock. Capital Research also slightly reduced its Time Warner Cable shares, selling 400,000 in the period, ending with 33.2 million shares.

Franklin Resources added about 5.9 million shares of Comcast Class-A Special Common Shares (also known as K shares) during the period, finishing the quarter with 47.1 million shares. It slightly increased its position in Comcast Class A Common Stock (also known as A shares), finishing the quarter with 6.02 million shares.

Janus Capital, one of the early backers of Comcast, sold about 3.9 million shares of its Class A common stock in the quarter, ending with 10.3 million shares. Its biggest buy was Time Warner Cable, adding 5.8 million shares. The next biggest buy was a bit surprising — 3.12 million shares of Cablevision Systems. Janus may have seen a buying opportunity because Cablevision has seen its share value decline rapidly; the stock was down 42% in 2011 and lost about 10% of its value in the fourth quarter of that year. The fund also added about 2.2 million shares of DirecTV stock in the period.