Story Stocks^®

TEGNA (TGNA), a new addition to our Yield Leaders Rankings, moved in at number two last week due to its compelling shareholder yield of 13.1%. The stock has not done much in 2024, sitting near its flatline following some ups and downs. However, a few trends are going in TGNA's favor, which can kick off a more substantial rally while also providing shareholders with an attractive 3.5% annual dividend yield.

What is TGNA? Like its counterpart, Sinclair Broadcast (SBGI), TGNA owns TV stations across major U.S. markets. Unlike SGBI, however, TGNA boasts 64 TV stations in 52 U.S. markets, making it the largest owner of the top four network affiliates, i.e., NBC, ABC, CBS, and FOX, in the top 25 markets, reaching around 39% of U.S. TV households. The company operates just one segment, generating $2.9 bln in revs last year, primarily from subscriptions, e.g., fees paid by satellite, cable, and telecoms to carry its TV stations, and advertising.

What has been holding TGNA back this year? The U.S. economy has cast a cloud on TGNA over the past several quarters. The company has not delivered a positive quarter of yr/yr revenue growth since 4Q22. Management chalked up its most recent underwhelming Q2 results to a sluggish and uncertain economy that has been echoed in national advertising spending, which continues to track below expectations this year.

• However, silver linings are appearing. During Q2, TGNA noticed that local ad spending was faring well despite the headwinds suppressing national ad spending, underpinning a willingness from small and medium local businesses to spend. This trend may accelerate now that the Federal Reserve has started cutting interest rates since local ad spending can often branch from automotive, housing-related, and other interest-rate-sensitive businesses. TGNA pointed out that during Q2, these sectors produced a drag on overall ad revenue.
• Meanwhile, political ad revs are helping partially offset TGNA's recent softness. Last week, SBGI raised its political advertising revenue outlook for the upcoming quarter and 2024. Increasing political ad revs do not just reflect a tight national election but also highlight the diverse audiences tuning into local stations. SBGI has commented that more than twice as many adults trust their local news compared to national news. TGNA noted in Q2 that it was seeing robust bookings from political ad spending.
• Coinciding with these developments has been TGNA's aggressive buybacks, repurchasing around 3% of its total shares outstanding during Q2. Going back to May of last year, TGNA has bought back 27% of its shares outstanding. The company is not slowing down either. TGNA has achieved just 56% of its total $350 mln commitment of returns to shareholders via buybacks and dividends.

Headwinds have not completely disappeared as the economy remains wobbly. Furthermore, cord-cutting can weigh on cash flows. However, the recent interest rate cut could kickstart a boost in ad spending. Additionally, live sports keep local channels necessary for pay-TV providers to continue carrying them. With the stock trading down mildly over the year, TGNA currently offers an attractive entry point for income seekers looking for potentially significant price appreciation. As always, a 15-20% stop loss limit should be used.