This Dividend Stock's a Textbook Example of a Solid Investment

Investing in established, large-cap stocks for dividends makes sense, but investors should not dismiss smaller dividend payers. One good example is John Wiley & Sons , a small-cap stock, with a market cap just under $2 billion. The company has an impressive dividend history that puts it on par with the large-cap dividend class. John Wiley has increased its dividend for 27 consecutive years. If it were a member of the S&P 500 Index and had a higher market cap, the stock would qualify as a Dividend Aristocrat, an exclusive group of stocks with over 25 consecutive years of dividend growth. Moreover, John Wiley stock has a current dividend yield above 4%. As a result, the stock is a worthy consideration for income investors who are willing to take a closer look at small cap stocks. A Lesson in Good Business John Wiley & Sons is a publishing and research company whose operations are split into three segments: Research, Publishing, and Solutions. The company offers scientific, technical, medical and scholarly research journals, reference books, databases, clinical decision support tools, laboratory manuals, scientific and education books, and test preparation services. Its services also include learning, development and assessment services for businesses and professionals and online program management services for higher education institutions. John Wiley & Sons reported its fiscal 2021 first-quarter earnings results on Sept. 3. Revenue of $431 million increased 2% in constant-currency, compared with the same quarter last fiscal year. On an adjusted basis, earnings before interest, taxes, depreciation, and amortization (EBITDA) increased 42% while earnings per share increased 124% due to revenue growth as well as significant cost cuts. Among operating segments, Research Publishing & Platforms revenue increased 6%, Academic & Professional Learning declined 12% and Education Services grew 29%. Importantly, the company maintained a strong financial position, which is increasingly vital, given the economic damage caused by the coronavirus. First, John Wiley maintained a trailing 12-month net debt-to-EBITDA ratio of two-times at the end of the most recent quarter. While this was slightly elevated from 1.7-times at the same time last year, it is still a reasonable level of debt. The company also has sufficient liquidity to get it through the coronavirus crisis. Available liquidity was approximately $750 million at the end of the most recent quarter, consisting of $101 million of cash on the balance sheet and $650 million of undrawn debt facilities. Potential to Book Profits Amid Downturn John Wiley & Sons' competitive advantages are its leadership in the publishing and research industry, as well as its successful transformation into a digital, recurring revenue business model. Since a substantial portion of its revenues are generated via journal subscriptions, which results in recurring revenues, and because demand from the scientific community is not overly cyclical, John Wiley & Sons performed quite well during the last financial crisis. John Wiley & Sons will likely remain relatively insulated versus changes in the publishing industry. The company performed extremely well during the last major economic downturn. From 2008 through 2010, a time known as the Great Recession, John Wiley & Sons grew its earnings per share by 30% in this period. This means John Wiley enjoys a relatively recession-proof business model, a big reason why it has maintained such a long history of dividend increases. This period of time has included multiple recessions, and still the company has been able to raise its dividend each year like clockwork. The coronavirus pandemic will undoubtedly continue to weigh on the global economy, perhaps even into 2021. But investors should maintain a positive long-term outlook for the company, because of its competitive advantages within its core industry. John Wiley & Sons' focus on publishing research journals, scientific books, and similar items gives the company a positive growth outlook. Book sales have declined in the U.S. for the past decade. But because John Wiley & Sons' books and journals are for students, professionals, and scientists (not for entertainment) the company enjoys a steady, recurring revenue stream. It has also successfully transformed itself, as around 75% of all revenues were generated from digital products during the last year. Furthermore, John Wiley's research segment has performed well in recent years thanks to growth from journal subscriptions and ongoing expansion in licensing and reprints. Overall, we expect 4% to 5% annual earnings-per-share growth over the next five years. Analysts currently forecast earnings per share of $2.52 for John Wiley in the upcoming fiscal year. Based on this, the stock trades for a price-to-earnings ratio of 13.1-times, which is a fairly low valuation for a profitable business. We believe the stock deserves a higher multiple of 17-times, based on the company's steady business results and long-term growth prospects. A higher valuation multiple could meaningfully add to shareholder returns, as will earnings-per-share growth and dividends. John Wiley shares offer an attractive 4.1% dividend yield, a highly appealing payout in a low-rate environment.

This Dividend Stock's a Textbook Example of a Solid Investment

Publisher John Wiley & Sons is a small cap gem, yielding 4%.

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