Hard Times for U.S. Newspapers, but this Canadian Publisher's Income Fund is Intriguing

Friday.  I was searching for a sturdy, growing media stock with a reasonable price and a good dividend and coming up empty-handed. Publishers are struggling in this economy and it is not a happy time for newspapers. This week The Sun, the (often) conservative New York daily, closed after six years. Hollywood's venerable and always enjoyable Variety can't find a buyer. Publisher McClatchy, among others, has a lot of debt, which added to sliding ad revenue could mean bankruptcy. In addition to declining ad revenues and audiences, newspapers also face tougher debt environments. Standard & Poor's put Gannett on credit watch, although the company does have fair cash flow. Even the New York Times is consolidating facilities and laying off staff to keep its credit rating up. McClatchy, Lee Enterprises and Scripps have such beaten-up prices and high yields that in better times they'd be irresistible takeover bait.

So looking to the Toronto Stock Exchange we find a media company of sorts, the Yellow Pages Income Fund (YLO-UN.TO; OTC: YLWPF), who indirectly holds about a 98% ownership interest in Yellow Pages Group and Trader Corporation. Yellow Pages Group is the leading local commercial search provider in Canada that annually publishes more than 340 Yellow Pages and residential directories and owns and manages Canada's most visited online directories. Trader Corporation leads not just in print but in online media with some 200 publications and 20 web sites covering automotive, real estate, general merchandise and employment.

The company's second quarter report was refreshing reading after the U.S. publishing gloom: Year- over-year organic online revenue growth of 44%, operating income up over 8%, net income up 6% and best of all, distributable cash up over 7%. The stock pays a monthly distribution of 9.75 cents a share which at yesterday's $9.31 is a yield of 12.5%. (Canada skims 15% off the top of any non-Canadian resident's payout, leaving you during the year with a mere 10.6%; but if you remember to hold the stock in a non-IRA-type account you can redeem that on your Form 1040 as foreign tax paid.) The company raised its dividend in August and before that, last November. The stock is about 40% off its November high and appears to be consolidating.