The Motley Fool

With the Reach share price in recovery, I think this is a great income stock to grab

The collection of a majority of UK local newspapers under a single owner may concern those who believe in a plurality of voices. 

But what does it do for investors?

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The Reach (LSE:RCH) share price jumped 8% on 18 July when the Daily Mirror owner confirmed it was in talks to buy out the majority of rival JPI Media’s assets.

The deal would put the likes of The i, The Scotsman, The Yorkshire Post and hundreds of small local newspapers in Reach’s growing stable. 

Reach rebranded from Trinity Mirror in 2018 after the £200m buyout of Richard Desmond’s Northern & Shell titles, including the Daily Express and the Daily Star.

And this latest acquisition puts the £256m market cap firm in a better position to challenge the competition: DMGT, which owns the Daily Mail, and Rupert Murdoch’s News UK, operator of The Sun and The Times. 

So are the fundamentals good enough to squeeze this stock into my portfolio?

The dividend yield jumped from 3.1% in 2015 to 7.3% at the end of 2017. And total dividends paid out to shareholders have grown steadily, if not spectacularly, over the past five years. But steady growth is good

What Reach does best is digital identity. Its flagship regional title the Manchester Evening reportedly reaches a million people every day, and Reach has embraced a mobile-first audience keen on social sharing with a colourful and simple brand that it repeats across big city titles like the Birmingham Mail and the Liverpool Echo. 

Now today’s half-yearly results to 30 June reveal operating profits up 7.2% to £71.3m, pre-tax profits 8% higher at £69.9m, earnings per share up almost 5% to 19.1p and the interim dividend per share gaining 5.5% to 2.50p.

The end of 2018 results reported in February were not good. The group posted £120m of pre-tax losses, with earnings per share plunging to an eye-watering minus 41p. 

But the Reach share price has recovered. Now priced at nearly 90p, these are levels we’ve not seen since May 2018.

There is sturdy cash flow, up 16% year on year, while net debt fell by £27.9m to £12.9m with CEO Simon Fox telling the market that the group’s trading position remains positive.

To me, leadership is everything, especially when I’m looking for long-term, set-and-forget dividend stocks.

So I think Reach has an especially bright future because of one piece of news confirmed today: Fox is due to depart after seven years at the helm, to be replaced by former Ladbrokes Coral CEO Jim Mullen.  

Mullen’s record at the bookmaking giant gives me hope that Reach will continue its ascent. Early in his Ladbrokes tenure Mullen oversaw the £2.3bn merger with Gala Coral, a 2016 megadeal that created the UK’s largest gambling company.

He also spent three years as chief operating officer at News UK in the late 2000s, before taking charge at William Hill. I think Mullen has the chops to help Reach integrate all the moving parts it now has to corral.

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Tom holds no positions in the stocks mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.