Recent Buy – Warner Music Group ( $WMG )
This purchase has been brewing for sometime now. The idea has been lingering for more than a year, it has just taken me that long to finally decide to deploy some capital into the idea correctly.
So the original investment idea happened a year or two ago. It came about because I had begun to notice a lot of headlines where companies were buying up the publishing rights to popular catalogs of music.
I am a huge fan of music so I sat down and began to think about what this meant. For a musician or group who are selling their catalog, it would be like getting one huge lump sum of money but you would be sacrificing all of your future earning potential of that music. More often than not thought that lump sum would be large enough that you could live off of it the rest of your life.
Now, as a buyer of the music catalog, you are having to pay a large amount to own the music rights but you will then also have the rights to all of the future earning potential of that music.
As an individual, it might make a lot of sense to want that large lump of money but I believe that there is a lot of power in being able to continue to earn off of the music.
The current world that we live in everyone is consuming their music by streaming it. The consumer is only paying a small monthly subscription fee for their streaming service but everytime they stream a song someone is earning royalties on that money.
I was liking this idea more and more because of the earning potential. Once you earn enough back to cover your initial investment then all future earnings will come with no expenses incurred.
Most forms of buisness have some type of operating cost too that business. Which means that even as the company is making money, then a certain portion of those earnings will be less because of the operating expenses of the business.
The beauty of owning music publishing rights is that there is no operating expenses. I mean we are talking about classic songs that we all grew up hearing and loving. So it’s not like you have to go own a marketing campaign to get us to click play on our favorite streaming service.
With all of these thoughts in my head, I had begun to look into the idea. I found a couple of opportunites but one of them seemed to be a bit better than the others.
Unfortunately though, not everything that glitters is gold. As I learned more about the company, I found some bumps in the road that I couldn’t seem to get past. The main one being that it was a foreign company. Which meant that I would be in a whole new realm as far as taxes and currency exchange.
So after further research, I decided not to pursue investing in the company.
From there the idea kind of went cold with me for a little while. Then recently, I was talking with my girlfriend about me paying for the Spotify app. I am a huge lover of music and would love to be able to build my own playlist of all of my favorite songs.
Then my girlfriend proceeded to hit me with a very serious truth. She says “Yeah, once you get started it, it’s impossible to quit.”
The light bulbs started going off in my head. So I set out once again researching into this investment idea and the answer that I ended up finding was to start a small position in Warner Music Group.
Warner Music Group Stock Dividend Data
Current Share Price: $32.60
Current Dividend Yield: 1.93%
Annual Dividend: $3.20
Payout Ratio: 48.70%
Dividend Growth History: 2 years
Earnings Per Share: $1.06
PE Ratio: 28.49
Recap of Information on Warner Music Group
The company history goes all the way back to 1929. The company currently operates in two different segments of the music business.
In one segment, they own record labels and deal with the discovery and development of new artist through distrobution and management.
In the other segment, they own the rights to over a million musical compositions and collect royalties on those compositions.
My research told me that Warner Music Group is one of the major players in this segment but they are not the largest.
I did look at some other companies like Sony but decided that the earnings of that business were too tied to cyclical businesses like the sell of their electronics.
For those reasons among others, Warner Music Group seemed to make the most sense.
The company has only been increasing their dividend for the past two years but they currently only have a payout ratio of 48.70%. With an earnings per share of $1.06 and a dividend of $0.62, I feel like the company will still be able to increase their dividend for years to come regardless of the overall market conditions.
Warner Music Group Impact on More Dividends
I added 30 shares of Warner Music Group at an average price of $26.06. Currently, the share price has increased 25% to a new level of $32.60. This addition to my portfolio will add $19.20 to my projected annual dividend income not including the compounding factor. My current position in Warner Music Group contributes $19.20 to my projected annual dividend income. Which will give me a new grand total of $2,391.36.
I think that the investmment idea is solid for the long term. Currently, I feel as though an investment in Warner Music Group is giving me the best opportunity. I will continue to watch this space to see if I can find some better opporunities in this space.
According to my current portfolio allocation, I am only holding less than 2% of my portfolio in the Entertainment sector so I will be open to the idea of strengthening this position or starting a new one.
Because the nature of this type of investment is centered around music publishing, I will be in no rush to make the purchase because I believe that an investment in music is good at any time moving forward.
Have you recently purchased stock in Warner Music Group? Do you currently own any shares of Warner Music Group? If so I would love to hear about it.
As always I look forward to reading all of your comments and questions, until then….. happy investing!!!
-Jason from MoreDividends.com
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