GMA7 clocks an 18% yield but faces a significant risk of a huge capital loss

The ascent of GMA7 to the present level of 7.48 Pesos a share could have been driven by the fall of its larger competitor, ABS.

With its larger competitor off the air, most investors may have flock to GMA7 believing that broadcast ad placements will migrate to GMA7. Indeed, for the 9-month period ending 30 September 2020 GMA7’s revenue grew by 4%.

Although GMA7 has not yet release the 2020 full year results, we could surmise that 4th Quarter 2020 results may have been spectacular given that GMA7 has declared a dividend of 1.35 Pesos a share. That dividend would be 4.5 times last year’s dividend.

With the 1.35-Peso dividend, GMA7 yields 18%. What is the risk? GMA7’s robust performance could be attributed to the absence of its larger competitor. What if its larger competitor will come back? GMA7’s share price may go down to the 4 to 5 Peso level if market will sell it in the event of an ABS come back. With ad agencies and advertisers once again having a strong alternative, GMA7’s performance may not be as robust as it is now. The dividend distribution may not be sustained.

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