TORSTAR CORP. $7.11 - Toronto symbol TS.B

TORSTAR CORP. $7.11 (Toronto symbol TS.B; Conservative Growth and Income Portfolios, Consumer sector; Shares outstanding: 80.1 million; Market cap: $569.5 million; Price-to-sales ratio: 0.5; Dividend yield: 7.4%; TSINetwork Rating: Average; www.torstar.com) publishes the Toronto Star, Canada’s largest daily newspaper by circulation. It also publishes three other daily papers and over 100 weeklies.

The slow economy continues to hurt advertising sales at Torstar’s newspapers. In the quarter ended June 30, 2014, the company’s revenue fell 7.4%, to $225.6 million from $243.6 million a year earlier.

Earnings jumped 44.2%, to $18.1 million, or $0.23 a share, from $12.6 million, or $0.16 a share. However, if you disregard restructuring costs and other unusual items, earnings per share fell 4.8%, to $0.20 from $0.21.

These results exclude the company’s Harlequin bookpublishing subsidiary, which it recently sold for $455 million.

Torstar plans to use some of the cash from the Harlequin sale to pay down its debt, which totalled $180.8 million on June 30, 2014. That’s equal to 32% of the company’s market cap.

The remaining cash, as well as lower interest expenses, will let Torstar keep paying quarterly dividends of $0.13125 a share, for a 7.4% annualized yield. In the latest quarter, dividend payments totalled $10.4 million.

The company also plans to keep cutting costs, mainly through layoffs and outsourcing certain editorial functions. These moves should save Torstar $26.2 million in 2014. In addition, the company is now charging visitors to access the Toronto Star’s website unless they have a print subscription. That should help offset lower revenue from print ads.

The stock trades at just 9.6 times the $0.74 a share that Torstar will probably earn in 2014.

Torstar is a buy for long-term gains.

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