John Wiley & Sons: Strategic Capital Allocation and AI Growth Position It as a Defensive High-Yield Play

John Wiley & Sons (NYSE: JW.A) has long been a stalwart in the knowledge services sector, leveraging its authoritative content and data-driven insights to fuel growth. Recent moves—most notably a $250 million share buyback authorization and its 32nd consecutive dividend hike—signal a renewed focus on shareholder returns. Pair this with 3% revenue growth in FY2025, a 300 basis point margin expansion, and a 3.25% dividend yield, and investors are presented with a compelling opportunity in an uncertain market. Here's why Wiley is a prime candidate for value creation through strategic capital allocation.

The Dividend and Buyback: A Dual Engine of Value

Wiley's dividend increase—raising its quarterly payout to $0.355 per share (an annualized $1.42)—marks a 32-year streak of consecutive hikes, underscoring its financial discipline. With a yield of 3.25%, this is a standout feature in a low-yield environment. Meanwhile, the $250 million buyback program (up from $200 million in 2020) signals confidence in the stock's undervaluation.

The math is compelling: $60 million spent on buybacks in FY2025 (a 34% increase over prior-year levels) paired with dividends ($76 million) totals $136 million returned to shareholders—a 9.3% payout ratio of its $1.47 billion market cap. This efficient use of cash ensures investors benefit from both income and potential share price appreciation.

Financial Fortitude: Margins, Cash Flow, and AI Growth

Wiley's FY2025 results reveal a company in control of its destiny:
- Adjusted EBITDA hit $303 million, with margins expanding to 24%—up 300 basis points year-over-year.
- Free Cash Flow rose to $126 million, and management targets $200 million in FY2026, driven by cost savings and AI licensing growth.
- AI revenue surged to $40 million in FY2025, up from $23 million in FY2024, as partnerships with tech firms leverage Wiley's content for AI training.

The AI push is critical. With $200 million in projected Free Cash Flow by FY2026, Wiley can fund buybacks/dividends while scaling AI initiatives. The company's 75% recurring revenue in Research Publishing (subscriptions, open-access fees) provides stability, while AI partnerships offer high-margin growth.

Why Wiley is Undervalued: A Moat-Fueled Defensive Gem

Wiley's $2.3 billion market cap lags its $300 million+ annual Free Cash Flow trajectory, suggesting undervaluation. Key moats include:
1. Content Assets: Its journals (e.g., Lancet, Nature) and textbooks dominate academic markets, with 19% growth in article submissions in FY2025.
2. AI Synergy: Content licensed for AI training creates recurring revenue streams.
3. Debt Discipline: A net debt-to-EBITDA ratio of 1.8 ensures flexibility, even in downturns.

In a volatile market, Wiley's 3.25% yield and defensive cash flows make it a low-risk, high-yield holding.

Investment Thesis: Capitalize on Undervaluation

• Buy the Dip: The stock trades at 12x FY2025 EBITDA, below peers like Elsevier (private) but with superior dividend growth.
• Target 2026 Margins: Achieving 25.5-26.5% EBITDA margins could boost EPS and justify a valuation rerating.
• AI Upside: If AI revenue doubles to $80 million by 2026 (not unreasonable given growth rates), it could add ~$50 million to EBITDA.

Conclusion: A Rare Blend of Yield and Growth

Wiley offers a rare combination: a 3.25% dividend yield, a $250 million buyback, and AI-fueled growth in a market where certainty is scarce. With free cash flow set to hit $200 million by 2026 and a 32-year dividend streak, it's a defensive stock with offensive potential. Investors should view dips as buying opportunities—Wiley's moat, capital returns, and AI tailwinds make it a buy at current levels.