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Published: December 11, 2009
Something was drastically amiss.
I had turned the radio in my car to my favorite FM station, a
boisterous "urban" format that's best enjoyed loud.
But that's not what I was hearing.
Not even close.
I called a friend who happens to work at the station and asked
what happened. She told me although the station was making money
for its parent, Emmis Communications (Nasdaq: EMMS), the company
nonetheless decided to change the format.
The reason? Emmis sees more robust long-term growth serving a
different demographic.
So my favorite radio station now plays -- Mexican music.
Spanish is the primary language for more than a third of the
population of Texas, California and New Mexico. Latinos
comprises 10% of the population in 10 U.S. states.
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Today, 34.2 million Americans -- 72.9% of a
total of 46.9 million U.S. Hispanics -- speak Spanish at home, a
gain of 500,000 from the year before. In 2000, 28.1 million
people spoke Spanish at home, which was a dramatic increase from
1990, when just 17.4 million did. So while the U.S. population
grew +31.7% in the past 20 years, the Spanish-speaking
population grew by +97.7%.
The Census Bureau projects 102.6 million Hispanics will live in
the United States in 2050, nearly 25% of the population. If the
Hispanic population continues to speak Spanish at home at the
same rate as today, 74.8 million Americans will speak Spanish at
home in 2050. That's more than any country in the world except
Mexico.
My radio station won't be the last to make the switch.
While there are 13 public radio companies in the United States
today -- all of which could, theoretically, broadcast in Spanish
-- one company has two big advantages.
First, the company is based in Mexico and broadcasts only in
Spanish. And second, the company is the highest-yielding radio
station available to U.S. investors, with a yield above 5%.
Grupo Radio Centro (NYSE: RC) is a $150 million company that
owns or operates 15 radio stations, most of which are in Mexico
City. The company also owns a radio network that does sales and
programming for 108 affiliate stations throughout Mexico.
That's just the beginning: The company wants to expand into the
United States. But there's a catch. The Federal Communication
Commission doesn't allow foreign companies to own U.S.
broadcasting stations. The company, however, has found a
backdoor into the U.S. market.
In April, Grupo Radio Centro began a seven-year,
$7-million-per-year lease of KXOS-FM, an Emmis-owned station in
Los Angeles, with an upfront payment of $14 million for the
first two years. The lease allows Grupo Radio Centro to buy the
station for $110 million -- if the law allows -- or to designate
a third party to buy the station, with which it could negotiate
a new lease.
The company pays annual dividends. For the past two years, it
has paid 0.6145 Mexican pesos per Bolsa Mexicana-listed share.
Since one NYSE-listed ADR represents nine Mexican shares, each
share of RC has annually received 5.5305 pesos. At current
exchange rates, that equals $0.428 per share for a yield of
5.25%.
For the nine months ended Sept. 30, revenue was +4.2% higher
than for the same period of 2008. The company said that this was
due to more advertising by clients as well as revenue from KXOS-FM.
Income, however, was -41.6% lower due to expenses in connection
with the KXOS deal. As of Sept. 30, the company had $14.4
million in debt and $5.6 million in cash on the books.
Grupo Radio Centro is a great play on the growth of the
Spanish-speaking population in the United States, and the 5.25%
it yields is the best in the industry.
-- Anthony Haddad
Staff Writer
StreetAuthority
P.S. If you like income, there's a better way to play Mexico.
Back in July, Carla Pasternak brought her
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payday if you act today.
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