The Dividend Cafe - Media Mergers and Dividend Growth

Episode Date: January 16, 2026

Today's Post - https://bahnsen.co/4jGkzyW In this episode of Dividend Cafe, host David Bahnsen explores the critical importance of dividend growth investing, using real-life examples from the media sector's history of mergers and acquisitions. He talks about the recent Netflix's proposed acquisition of Warner Brothers Discovery, recalling the infamous AOL Time Warner merger and the turbulent history of Viacom, Paramount, and CBS. He contrasts these with companies like Comcast that have demonstrated responsible capital return through dividend growth. Bahnsen explains how dividend growth signals management's confidence in their business model and serves as a safeguard for both investors and companies, preventing reckless financial behavior. The episode emphasizes the value of dividend growth investing for long-term shareholder value and financial stability. 00:00 Introduction to Dividend Cafe 00:29 The Media Sector's M&A Drama 02:21 The AOL Time Warner Merger: A Case Study 07:18 The Rise and Fall of Viacom and Paramount 10:56 The Importance of Dividend Growth 19:15 Conclusion and Final Thoughts Links mentioned in this episode: DividendCafe.com TheBahnsenGroup.com

Welcome to the Dividend Cafe, weekly market commentary focused on dividends in your portfolio and dividends in your understanding of economic life. Hello and welcome to the Dividend Cafe. I am your host, David Bonson, and I am here today to talk about one of the great illustrations of the need for dividend growth investing of my adult lifetime. We're going to delve into a couple real-life historical things today in the media sector. A little blasts in the past. I think it's kind of a fun story, but I want to tell you a little bit about what's inspired this. Here at the Bonson Group, we do not own Netflix, which is currently in agreement to buy Warner Brothers Discovery. We do not own Warner Brothers Discovery. We do not own Skydance, did not own Paramount.

And these are all companies that have been involved with some really major M&A drama. And in fact, it's not done yet. I follow it very closely. And yet I don't follow it because we have skin in the game as shareholders. I follow it first of all because I consider the corporate scold duggery of it all to be fascinating. And I'm sort of a nerd about business history and these types of things. But I also follow it because I believe that there are. There are real investment lessons that come out of a lot of corporate M&A and corporate drama,

but particularly over time and embedded in history, there are stories and lessons that I think get to the very heart of what the Dividing Cafe is all about. And this entire Netflix story kind of inspired a little bit more study, review, history for me and brought me back to a book I had read last summer and a research project that we did internally in our investment solutions department at TBG that I thought, you know what, there's really an important dividend cafe here. So that's the setup for this and allow me to connect all these dots for you today in the dividend cafe. So essentially, what does Netflix potentially buying Warner Brothers and it being pursued by

Skydance, who had just got done buying Paramount, what does this have to do with dividend growth? First of all, to understand the history of it, I want to bring you back to a dividend cafe that I wrote, I believe, in July of last summer. And it was at the 25-year anniversary of what I referred to then, not for poetic purposes, but literal purposes as the worst business deal in history. And that was the AOL Time Warner merger from the year 2000. And if you notice the name Warner, Time Warner, part of that story, and now we're sitting here talking about this new potential acquisition and the name is resurfacing. There's an interesting thing, and there's a couple other companies we're going to talk about

today that are also part of this. I think the proverb is referred to it as a dog returning to its vomit type of story. But what I referred to in that AOL Time Warner story was a case of almost psychopathic mergers and acquisitions that destroyed a lot of shareholder value. But the company that was actually acquired in that was not AOL. It was Time Warner, which had been bought by a far smaller company in terms of earning power, larger at the time in terms of stock price, AOL. But Time Warner itself was the combination of time. Time, Time, Inc., which was Time Magazine, Life Magazine, they owned Sports Illustrated, Fortune, People Magazine, big publishing assets that had merged with Warner Brothers, which was the big

Hollywood movie studio, TV shows, and a music company. So Warner Communications and Time Merge, and I think it was six years later, 1996, that Time Warner merged company bought Turner. And so Turner Broadcasting was CNN. TBS, TNT. So now they have this major behemoth. Let's see, it was Legacy Time that owned HBO. And so you have these various media conglomerates

merging together, becoming bigger, and then eventually selling to AOL. That whole deal becomes a debacle, hundreds of billions of dollars blown up. That goes away. They separate. They exist separately from each other and all that value for shareholders disintegrated.

And then in 2009, Time Warner is trading as its own back to just being a normal mid-media company. They go through about a decade of being a pretty healthy, normal, functional company, more than doubling their market capitalization, growing the dividend every single year. It was at about 21 cents a share per quarter when they began that decade, and then got up to 40 cents a share in six years. So they more than double the market cap. They double the dividend.

These things are directly correlated, I would argue. And then in 2018, AT&T buys Time Warner for $105 billion, I believe. They end up selling it for $43 billion in a spinoff. So they just light the world on fire. And I don't mean that in a positive way. And merge it with Discovery. And then Warner Discovery is now the asset that net. Netflix is attempting to buy far, far less in equity value than any of these transactions.

And in the meantime, oh, by the way, I'm sorry, one of my most interesting anecdotes to this is that in the Netflix deal, and there's links to all of this, by the way, in Dividing Cafe, some news links and so forth about stuff I'm talking about. Netflix is paying most of the deal in cash, but then there's this little piece that they're going to just spin off as a stock separate. for what they're calling Discovery Global, they're not even buying CNN, TNT, TBS. So the essential like networks that were a huge part of the value of the combined entities in the past is not, I don't even want to call it a footnote. You could argue it's negative equity in the deal once you sub-batch, once you allow or allocate for debt. But it's either been given a tiny allocation.

or no allocation or in some ways of accounting for it, a negative allocation. And that's after all of these years of multi, multi, multi, multi billion dollar transactions and whatnot. It's just fascinating. As of right now, Netflix is in a merger agreement to buy Warner Bros. Discovery. But Skydance is filing lawsuits, trying to do a tender offer, pursuing various corporate M&A strategies to acquire it itself. and Skydance is the company that just last year,

I think the deal closed in August, it's not even six months old yet, but Paramount and CBS. Paramount and CBS is a byproduct of a handful of mergers. And this is the story I'm going to actually focus more on in terms of the principles of shareholder respect and capital return and things like that. But the history here,

I just recently read a book called The King of Content about Sumner Redstone, and I had read a different book about Viacom and Summner Redstone last summer by James Stewart, and that prompted me to do a research project internally with our investment committee, and one of our equity analyst here at Bonson Group, Ishaan Chabra, led a project for me to look back at the history of this company called Viacomps. that bought Paramount, that bought CBS, that now just finally we get a kind of end of this story in it selling the Skydance. And way back in the late 80s, Senator Redstone bought Viacom, which owned Nickelodeon, MTV,

Showtime. You can imagine how big those media assets were in the 80s. And he did that with a leverage buyout using as leverage the fact that he had, inherited a drive-in movie theater business, and he built it big, and he was a player and a real muck-dy-muck, but he got into the content business by acquiring Viacom out of owning a chain of drive-in movie theaters. And then Viacom in the early 90s acquired Paramount. There was a bidding war for it, and Barry Diller, who had run Fox and had run ABC, almost prevailed. They did prevail in bidding up the price quite a bit, but in the end, Viacom won and ended up buying Paramount for $10 billion.

Well, then they bought CBS six years later for $35 billion. And the combined company just all sold. Viacom, Paramount, CBS, all put together. Just sold to Skydance for an equity value of $8 billion. That's with new equity money being put in. Shareholders didn't get all that. And then there's debt of about another $15 billion. So let's call it $22 billion, $23 billion. Okay?

I mean, it's unfathomable from peak valuations, how much money has disintegrated. So it's a very complicated story and why Ishawn did some really cerebral work for me is because there's five different holding periods here of when someone just owned Viacom but then it merged with Paramount and there's share swaps and there's different splits,

there's spin-offs, then they acquire CBS, but then in 2006 they spun off CBS and in 2019 they re-merged it So you can ignore all that. It gets very complicated, but Ishawn did all the work to calculate five different holding periods and basically say if someone had just at the very beginning put in a thousand bucks, what's it worth 32 years later? And it was like $780. Mind you, and like one of the biggest bull markets in human history, really two of the biggest bull markets in human history. And of that $780, $443 of it was. dividends that had paid out over the years. All right. And this is going to get me to my real point is the classic example here

of where a failure to respect shareholders destroyed an unfathomable amount of value. CBS Paramount, the studio, the various networks that they own, the various media properties, these things haven't lost brand value per se. You could argue there's strategic decisions made, that were difficult, that they were behind in streaming, and then they did this poorly,

and they did this well, but this, yeah, I mean, like a normal operating business, there's ups and downs in their execution, but the business didn't fail. It wasn't like it was a Xerox that just came in and some new technology put it, you know, to pasture. That's not what happened. What they did was show no regard for shareholders, no capital discipline, and ultimately evidenced in the dividend philosophy, we get yet another illustration of how these things should work

and how they don't work and what happens in between. You take a company like Comcast, which I want to be clear, is not a company TBG owns or has ever owned. It is a company we've looked at over the years. It's a good dividend grower, but there's links to some of their stories in Dividend Cafe as well. But now, like, going back almost 20 years, they've grown the dividend about 13% a year

and created unbelievable value for shareholders as a media content and distribution company. Viacom Paramount CBS saw its dividend go down at 9% per year. Very inconsistent, sporadic, dividend as an option, strategy. And what I want to suggest to you, is that this is a perfect encapsulation of why the dividend and the ability to grow the dividend matters so much to us. In Dividendoncafe.com today, I have a couple long quotes from Ishawn.

The analyst I referred to did some of the work for me in an internal research report last summer that just beautifully captures the whole essence of what I'm getting at here that effectively what a company like Comcast did well, and there's so many other examples, is set a capital return philosophy and make operational and financial decisions around it. They had ups and downs as a company. They pursued expensive acquisitions as a company, but they created a governor of their own behavior. To be that kind of dividend grower and take on debt for acquisition,

you have to maintain a credit rating. So they were operating within financial metrics that they were held accountable to. There were going to be up and down periods in the economic cycle, but they wanted consistency in how they rewarded shareholders. And it led to more prudent decision-making. When you remove that governor in management decision-making, you get psychotic acquisitions and spinoffs and things that, as Eshan so eloquently,

referred to it as empire building replaces the actual stewardship of investor capital. And this is the problem. And it is, I think, pronounced in the media sector. There's more significant examples of this in the history I'm talking about. You look at that AOL Time Warner deal, which was supposed to be a kind of new media pursuit when everyone was deathly afraid of not getting into the internet. and you look at some of these other media examples. I am positive that I can write a Dividing Cafe every Friday for the rest of my life.

Various examples across all sorts of different sectors. Are there more pathologies like this in the media world, perhaps? The summer Redstone stuff, he's passed away now. But this is, I can't recommend you read these books, the tawdry, just scandalous, dramatic things, family. turmoil, sexual scandals, all this stuff. But see, this is the thing is the Paramount Viacom CBS story, there's sexual harassment stuff with executives, there's bad decisions, there's governance issues, there's boardroom drama. That's not what destroyed the company. If you, as a management team, believe in your own business model, you can prove you believe it by paying a sustainable,

growing, reasonable, responsible dividend and dividend payout ratio to your investors who are the owners of your business, albeit minority owners. That dividend becomes a sign of management's own confidence, but it also becomes a source of financial strength that that greater equity model now enjoys a lower cost of capital. And the decision making done around the mitigator of consistent dividend growth has more reasonable leverage ratios, less reckless swings for the fences, and the ability to absorb capital markets when these decisions are made. Capital markets are more willing to fund things when they see this sort of ecosystem of financial stewardship evidenced in dividend growth. So you now look at a company like Viacom Paramount

CBS that from the very beginning, over the course of 32 years, destroyed 21% of investor capital, and that's counting over 50% of the return of capital, having come from dividends that were paid out over time. Okay, so essentially what I'm getting at is there are stories like that, and then there are cases of companies that are up five times, 10 times, 20 times investor money in this period and have responsibly paid out dividends along the way which reward shareholders, mitigate the risk shareholders have taken

and signify to shareholders the seriousness of the business model they're invested in. And this will bring me to my conclusion, not to pick on the specific companies we've talked about here, but to use them as illustrations. Because none of these companies are even companies that we have owned. but when a good cash flow generating company that did mergers and acquisitions, I'm not saying M&A is always bad, but did it within a governor, did it within reasonable

decision making, and didn't sacrifice its ability to return capital shareholders in those periods, you look at the golden years of returns to all these mergers and acquisitions over this time period, going back even further, of household names, iconic brands, Paramount owned Simon and Schuster. I already told you all the different brands in the portfolio of some of these companies emerged. Time Warner period where they took a decade to just return capital shareholders, grow dividend, become a better company, focus on their operating business. Golden years. You look at, I use Comcast as an example that became a great dividend grower 20 years ago. Massive returns, massive wealth creation. And then you look at the stories that are just pathological

destruction of value. It's psychotic in a way. But the dividends evidenced the way management viewed their own model that they didn't believe that there was enough consistency, enough dependability in what they were doing. And then the lack of dividend not only became a signifier, but it became the self-fulfowing prophecy that the capital itself had not been treated well, therefore was not available when more reasonable equity capital is needed to fund acquisitions, to fund infrastructure, to fund investments into new technologies, and the company lost its competitive edge. So put the media sector aside and put the specific companies I've talked about aside, and I have absolutely no opinion whatsoever on the kind of M&A drama that's playing out

with this Netflix deal. It's very interesting, but it's not something that I don't talk about that because I care about that outcome per se. Dividend growth is all at once a sign of the confidence managing as in their own business model, and then it becomes something that creates value both by mitigating risk, lowering cost to capital, and fundamentally mitigating the behavior of management. corporate managers, board members, CEOs are all human beings. And I tell you all the time that I advocate dividend growth investing because we are all human

beings as investors. So we need risk mitigation. We need the benefit of accumulating automatically during periods of volatility. It helps us to avoid chasing. overpriced fads and excessive, just that crowd-chasing manias that exist. Dividend growth is a mitigator to our own behavior as investors, both in panic and euphoria moments. But it is also a mitigator to the behavior of corporate managers. And the media sector and the stories we've talked about today are case in point. And being able to avoid those things and actively manage the process

that goes into this. This is the work that we do that we believe in, and I find it not only historically fascinating, but reinforcing of the principles and philosophy that are the end to which we work. Thank you for listening. Thank you for watching. Thank you for reading the Dividend Cafe. And thank you to Ishawn for absolutely outstanding analysis done last summer that I got to use as inspiration for today's Dividing Cafe. Have a wonderful weekend. I'll be bringing you the Monday Dividendon Cafe format on Tuesday because of the Monday MLK Day Federal Holiday.

I'll see you again on Tuesday. And, of course, for the Friday, Dividend Cafe will be back with you again next Friday talking about the gamification of markets. Take care. The Bonson Group is a group of investment professionals registered with Hightower Security's LLC, member FINRA and SIPC, and with Hightower Advisors, LLC. a registered investment advisor with the SEC. Securities are offered through Hightower Securities LLC.

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