I would buy Manchester United stock today

I think Manchester United shares look cheap. Investors seem to ignoring the temporary nature of the Covid-19 crisis and missing the growth potential of shares in one of the biggest football clubs in the world.

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I thought Manchester United (NYSE:MANU) stock was a worthy addition to my portfolio back in October 2020. Until fairly recently, the Manchester United stock price was moving in the right direction. I believe that investors are concerned about a potential dividend cut.

Manchester United dividend

Manchester United has paid a dividend of 80 cents per share since 2016. Since then, the stock has traded as high as $27.70 and as low as $12. The dividend yield on the stock has therefore ranged between 2.9% and 6.7%. Manchester United stock yields around 5% at the current price of about $16, assuming an 80p dividend.

So, is that dividend in danger? Well, Manchester United made a £23m loss in 2020. A £118m drop in revenues was to blame for this. The coronavirus pandemic delayed the end of the 2019–20 season and forced games to be played behind closed doors, which hurt gate receipts and broadcasting income. Long-term borrowings increased by around £15m in the 2020 fiscal year.

The 2020–21 season looks like it will be played behind closed doors in its entirety. A loss was made in the first quarter of 2021. A bumper profit — from fat broadcasting revenues from Manchester United’s continuing participation in the UEFA Champions League — was reported in the second quarter.

Dividend cut risk

Manchester United got knocked out of the 2020–21 Champions League. The club does continue to compete in the less richly rewarded UEFA Europa League and looks to be on course for a strong Premier League finish. There is the possibility that 2021 will be another loss-making year, putting strain on the club’s finances. Perhaps fears about further losses help explain the precipitous drop in the Manchester United share price that follows the 11 March 2020 news that a member of the controlling Glazer family was selling 5m shares. This might have been seen as a vote of no confidence from someone considered an insider, perhaps even as a cash raise before an as-yet-unannounced dividend cut.

Speculation is always risky. The Glazer family would still own a 75% controlling stake after the sale. But I think it is safe to say that Manchester United cutting its dividend is more likely due to the squeeze on the club’s finances. Manchester United is not to blame for the rise in risk, all football clubs are feeling the pain, and the pain should be temporary.

Manchester United stock price

Next season fans will return to Manchester United’s Old Trafford ground lifting matchday revenues. Qualification for the lucrative Champions League via a top 4 Premier League finish looks fairly certain. Competition for Premier League and UEFA competition broadcasting rights is increasing. Amazon has entered the broadcasting rights battle, and other streaming services might join in. Manchester United’s broadcasting revenues should grow over the long term.

A new five-year shirt sponsorship deal has been signed for the 2021–22 season onwards. Although it is worth less than the previous deal, it appears to at least equal Barcelona’s, which was also completed during the pandemic. This, I think, speaks to the strength of the Manchester United brand, which is a boon for its commercial revenues.

I would buy Manchester United for my portfolio today. I am concerned about a dividend cut, but I think it would be temporary. Once the pandemic is over, and something like normality is restored, I think Manchester United stock should return to form.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. James J. McCombie owns shares in Manchester United. The Motley Fool UK owns shares of and has recommended Amazon and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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