Salem Communications Corp. in recent years loaded up on debt so it could add to its flock of Christian and conservative radio stations and websites.
Now, the Camarillo broadcast company is refinancing its debt load earlier than expected to take advantage of low interest rates and shore up its balance sheet, leading investors to anticipate an increase in its dividend.
The refinancing announcement and a strong earnings report last month sent shares of Salem up 11 percent to $6.92 for the week ended March 6, making it one of the biggest gainers on the LABJ stock index. (See page 38.) Its stock has climbed more than 150 percent in the last 12 months.
“It’s a smart move to refinance now,” said Eric Wold, a San Francisco analyst who covers the company for B. Riley & Co. “It’s going to free up a lot of cash flow to give back to shareholders. The question now is how much they decide to increase the payout.”
The company began offering its current 3.5 cent quarterly dividend in March last year to appeal to income investors. That’s about a 2 percent dividend yield.
On Feb. 25 last month, Salem announced plans to issue $300 million in institutional debt and a $25 million line of credit.
“Given the historic lows for interest rates, we felt now is a great time to move,” Evan Masyr, Salem’s chief financial officer, told the Business Journal. “To solidify Salem’s financial future for the next seven years, we feel it’s well worth doing.”
Salem benefited last year from the deluge of political advertising dollars spent during the run-up to the presidential election. The company last month reported that full-year revenue from political advertising totaled a record $5.5 million, 49 percent more than its previous record in 2010.
It also boosted its Web presence by buying sites that target conservative and Christian audiences. Salem posted fourth quarter Internet revenue that grew more than 25 percent to $10.2 million, accounting for about 17 percent of the company’s sales.
It acquired Richmond, Va., Christian video website Godvine.com in October, adding to a portfolio that includes conservative opinion sites HotAir.com and Townhall.com.
The company reported fourth quarter net income of $2 million, more than triple the net income for the same period a year earlier. Revenue from the company rose 6 percent to $60.6 million.
Without a major election coming up, it’s unlikely the company will match last year’s political revenue.
“It’s going to be a hurdle this year in terms of the comparison,” said Wold, who has a “buy” rating on the stock and a price target of $8.
He said the company will, however, be able to increase market share through acquisitions.
“You’re still going to get some good growth out of their core business,” Wold said.
