Video didn't kill the radio star, nor did it kill radio, though radio might appear prostrate given the industry's obdurate funk. The heavyweights – Clear Channel Communications (CCU), Citadel Broadcasting (CDL), Cox Radio (CXR), Cumulus Media (CMLS), Emmis Communications (EMMS), and Salem Communications (SALM) – have all been buried, or at least you'd think so based on year-to-date performance.

Two primary worries troubling the punditry are competition for advertising dollars and revenue growth. The former is fierce, the latter erratic. But like Mark Twain, the industry's demise has been greatly exaggerated. Despite the onslaught of subscription radio, internet media and personal music devices, radio continues to expand its $20 billion advertising base.

My two favorite companies from the aforementioned heavyweights are Clear Channel Communications and Citadel Broadcasting. Clear Channel is the industry champion, operating nearly 1,200 radio stations across the United States and accounting for nearly 10% of the industry's revenues.

But props for Clear Channel have been hard to come by because of the company's proclivity to miss earnings estimates. On that front, Clear Channel's second quarter 2006 earnings fell 10%, falling short of analysts' estimates. But in media, cash flow is king and Clear Channel reported consolidated EBITDA of $649 million, a 4.6% increase from the previous year.

Moreover, Clear Channel is willing to use its cash to enrich shareholders, returning nearly $1.6 billion through recurring (and rising) dividends, share buybacks and special dividends. Given its ability to generate cash and its willingness to distribute it to shareholders, Clear Channel's stock looks appealing with its current 19% discount to its 52-week high and 2.6% yield.

My other favorite radio broadcaster, Citadel Broadcasting, is the fifth largest in the United States. The company operates 163 FM and 58 AM radio stations in 49 markets in 24 states.

Expect that footprint to swell. In February, Citadel agreed to combine The Walt Disney Company's (DIS) ABC Radio – 22 radio stations and the ABC Radio Network – with its own. The holders of Disney would own approximately 52% of the common stock of the combined entity, which will fly under the Citadel Communications moniker.

Recent press reports have questioned whether the proposed merger will conclude under the original terms. Since the merger announcement, Citadel's stock has declined 33% to trade through a $250 million deal collar. Nevertheless, industry insiders expect the deal to be consummated; I expect the deal to be completed by year's end.

Citadel, like Clear Channel, has seen its stock squeezed because it missed analysts' estimates. The company reported a second quarter loss of $74.8 million thanks to a $149.8 million write-off to reduce goodwill and intangible assets. Lost on investors was Citadel's positive free cash flow of $38 million, which, like Clear Channel, was used to enrich shareholders.

To that end, Citadel has purchased 24.1 million shares and has paid cumulative dividends of $62.2 million. The stock is currently yielding 8.7% (which is high but appears safe given the recently announced $0.18 quarterly dividend payable Oct. 20) and is trading at a 39% discount to its 52-week high.

Related Articles
  1. Investing News

    Latest Labor Numbers: Good News for the Market?

    Some economic numbers are indicating that the labor market is outperforming the stock market. Should investors be bullish?
  2. Investing News

    Stocks with Big Dividend Yields: 'It's a Trap!'

    Should you seek high yielding-dividend stocks in the current investment environment?
  3. Investing News

    Should You Be Betting with Buffett Right Now?

    Following Warren Buffett's stock picks has historically been a good strategy. Is considering his biggest holdings in 2016 a good idea?
  4. Products and Investments

    Cash vs. Stocks: How to Decide Which is Best

    Is it better to keep your money in cash or is a down market a good time to buy stocks at a lower cost?
  5. Investing News

    Who Does Cheap Oil Benefit? See This Stock (DG)

    Cheap oil won't benefit most companies, but this retailer might buck that trend.
  6. Investing

    How to Ballast a Portfolio with Bonds

    If January and early February performance is any guide, there’s a new normal in financial markets today: Heightened volatility.
  7. Stock Analysis

    Performance Review: Emerging Markets Equities in 2015

    Find out why emerging markets struggled in 2015 and why a half-decade long trend of poor returns is proving optimistic growth investors wrong.
  8. Investing News

    Today's Sell-off: Are We in a Margin Liquidation?

    If we're in market liquidation, is it good news or bad news? That party depends on your timeframe.
  9. Investing News

    Bank Stocks: Time to Buy or Avoid? (WFC, JPM, C)

    Bank stocks have been pounded. Is this the right time to buy or should they be avoided?
  10. Stock Analysis

    Why the Bullish Are Turning Bearish

    Banks are reducing their targets for the S&P 500 for 2016. Here's why.
RELATED FAQS
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center