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When considering elite dividend stocks, investors tend to gravitate towards traditional dividend-focused industries such as consumer staples or utilities. However, there are some niche industries that have produced some truly great dividend stocks, with one of those being publishing.

While publishing paper books isn’t what it used to be, the best companies in the space have adapted and as a result, some have produced strong dividend growth histories. One such company is John Wiley & Sons, Inc. (WLY), a company that has boosted its dividend for almost three decades consecutively.

John Wiley is a member of the blue chip stocks, which is a group of more than 350 companies that have raised their dividends for at least 10 consecutive years. We’ve compiled the full list of Blue Chip stocks which you can download by clicking below:

This edition of the 2022 Blue Chip Stocks In Focus series will analyze John Wiley’s business, and its prospects for shareholders today.
 

Business Overview

John Wiley is one of the oldest publishers in the US, having been founded in 1807. That sort of longevity is difficult to find in any industry, but in particular, one that has changed as much as publishing. John Wiley operates through three segments: Research Publishing & Platforms, Academic & Professional Learning, and Education Services. Through these segments, the company offers a wide and deep catalog of scientific, technical, medical, and scholarly journals, textbooks, and more. These are used by individuals, professionals, academic institutions, corporations, governments, and more. The company has also adapted in recent years to publishing digitally, more effectively serving the changing needs of customers such as universities and medical professionals.

The company employs almost 10,000 people, generates about $2.1 billion in annual revenue, and trades with a market cap of $2.8 billion.

John Wiley reported fourth quarter and full-year earnings on June 15^th, 2022, and results were better than expected in both revenue and earnings.

Source: Investor presentation, page 10

Results showed a 4% improvement in revenue to $546 million, while adjusted earnings-per-share declined 6% year-over-year. The company noted heavier spending in the second half of the year as the primary cause of the weak earnings-per-share figure.

The Research Publishing & Platforms segment saw revenue rise 5% in Q4, and up 6% on an organic basis. Academic & Professional Learning fell 7% and declined 5% on an organic basis. The company noted this segment is seeing a strong recovery in corporate training demand. Finally, Education Services revenue was up 8%, and rose 6% on an organic basis, as Talent Development led the way.

Adjusted EBITDA was up 12% in Research Publishing, but fell 3% in Academic & Professional Learnings, in addition to plunging 29% in Education Services. With higher corporate expenses as well, the company saw what should be a temporary decline in earnings in Q4.

Next, we’ll take a look at the company’s growth prospects.
 

Growth Prospects

From 2013 to the recently-completed fiscal 2022, John Wiley grew earnings-per-share at an average rate of 3.5% annually. Given the company’s exposure to what is a low-growth industry, as well as the digital transformation it has undergone, that’s a decent rate of growth. We note that growth is far from linear, as there have been regular year-over-year earnings declines.

However, we see 4% annual growth going forward, which we attribute to a handful of factors. First, the company has been growing revenue nicely in recent years, which has been partially offset by declining margins. Second, the company is buying back its own shares, which reduces the float on which earnings-per-share is calculated.

The company is investing in the next phase of growth when it comes to operational efficiencies, such as its efforts to reduce office footprint, as well as rationalizing headcount in certain areas. The company is also investing in maximizing existing relationships with universities and professional publications to drive organic growth. Given these factors, we feel comfortable with 4% projected growth over the next five years.

John Wiley’s historical rate of dividend growth is almost identical to earnings growth, and we believe that pattern will hold. As the company is not in a high-growth industry, we believe it imprudent to expect sizable amounts of dividend growth.

However, the stock has a very nice 2.8% yield, which is about double that of the S&P 500. In addition, its payout ratio is just 39% for fiscal 2023, meaning the dividend should be quite safe. For investors that prioritize dividend safety over growth, John Wiley may hit the mark.

Source: Investor presentation, page 15

The company spends about $100 million in cash on dividends and share repurchases combined each year, which is less than half its free cash flow generation. Thus, we see John Wiley as being able to support dividend growth, share repurchases, and growth investments indefinitely.
 

Competitive Advantages & Recession Performance

We see John Wiley’s competitive advantage as fairly strong, given it has a massive scale in a fragmented industry. The company has countless existing relationships with professional societies, academic institutions, and the like. It also continues to expand its catalog of published material and has a high level of recurring revenue. Given the bulk of its published material is non-discretionary, we see its recession resilience as quite good.

We note the company generally tends to see earnings volatility from year to year, but it is not related to economic strength or weakness. And as mentioned above, given this, as well as the low payout ratio, we have no dividend safety concerns from a recession.
 

Valuation & Expected Returns

John Wiley shares have spent most of the last decade between 13 and 19 times earnings, and we assess fair value at 15. The company will almost certainly never feature high growth, but on the other side, its competitive positioning is strong. Earnings should be largely protected as a result, so 15 times earnings account for those factors.

Shares trade for about 14 times earnings today, meaning they’re slightly undervalued. That could drive a modest tailwind to total returns should the stock return to fair value.

In addition to that, 4% earnings growth, and the 2.8% yield, we see a total expected return of 8% annually in the coming years. Given that, we rate John Wiley as a hold.
 

Final Thoughts

We see John Wiley as a company with a strong competitive advantage, scale, and brand recognition in a fragmented industry. The company has boosted its dividend for 29 consecutive years and has an operating history well in excess of two centuries.

The stock is slightly undervalued today, and sports a yield about double that of the S&P 500. However, relatively modest growth expectations have us rating the stock a hold. Still, John Wiley finds itself on the list of the most desirable Blue Chip stocks.

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