Warner Music Group Corp. views an increase in the company’s dividend as a preferred way to pay cash back to shareholders as opposed to paying down debt or buying back shares, a senior executive said on Monday (Dec. 5).
While the company has no immediate plans to hike its dividend, any payout would likely take that form, because of the low interest rate on its debt and the tight amount of outstanding shares, chief financial officer Michael Fleisher said on the sidelines of the UBS Global Media Conference.
“The interest rate of our total debt is about 6.6%, which is pretty reasonable, so paying down debt isn’t necessarily the best use of our cash,” he said.
“And on the equity side, while we believe our shares are undervalued, our float is so thin, a buyback wouldn’t necessarily have the effect we’d want it to have,” he added. “So if we have cash to return to shareholders, a dividend would likely be the best option.”
The company has already stated it plans to pay as much as $80 million a year in dividends.
Fleisher noted that its first use of cash would be to spend it on the business in the form of acquisitions or new acts. Acquisitions could include smaller independent labels or publishing assets. He downplayed making any investments in technology companies.
“We we’re not looking to move too far off the reservation,” he said.