Payback Time at Viacom

Updated from 8 a.m. EDT

Viacom (VIA - Cramer's Take - Stockpickr) is just rolling in it.

While rival AOL Time Warner (AOL - Cramer's Take - Stockpickr) diligently labors to reduce its debt, Viacom said Thursday that it would start paying a 6-cent quarterly dividend. The decision signals the company is flush enough that it can return cash to investors even as it continues to compete with less well-off rivals.

The media and entertainment conglomerate made the dividend announcement as it released financials for the second quarter ended June 30. Viacom's second-quarter earnings jumped 21% on double-digit revenue growth. Understandably impressed, investors boosted the stock 3% Thursday morning.

Payback

The dividend reflects in part Viacom's understanding that after years of waiting for the promise of future riches, investors in media and other sectors have decided they're more interested in present cash.

The move also spotlights the confidence of Chairman Sumner Redstone, President Mel Karmazin and the rest of the Viacom board that they can generate enough free cash flow -- that is, cash flow from operations minus capital expenditures and interest -- to issue dividends and buy back stock while still having enough money left over to make necessary acquisitions.

Viacom's board, said Karmazin on a conference call with analysts Thursday morning, feels "we can do this without stopping any expansion."

Target Practice

The media conglomerate said it earned $660 million, or 37 cents a share, in the quarter, up from $547 million, or 31 cents a share, last year. Analysts were forecasting earnings of 36 cents a share in the latest quarter.

Revenue rose 10% to $6.42 billion from $5.85 billion a year ago, reflecting gains of 22% in its cable networks, 10% in television and video, and 9% in its billboard segment. Overall advertising revenues was up 11%. Viacom's Infinity radio division, which has been underperforming in recent months, reported revenue down 3% from the second quarter of 2002. Karmazin, asked on the call whether he thought radio could return to its historical growth rates, responded, "I absolutely, fully expect that the radio business will return there," adding, "We are seeing improvements all the time."

For the full-year 2003, Viacom expects revenue and operating income to rise by a percentage in the high single digits, while earnings and per-share earnings should rise by a percentage in the mid-teens. The company earned $1.24 a share in all of 2002 and is expected by analysts to earn $1.44 a share in 2003, according to Thomson First Call.

The first quarterly dividend is payable Oct. 1 to stockholders of record as of Aug. 16.