Yellow Pages Limited (TSE: Y): A High-Risk Dividend Gamble in a Declining Market?

Yellow Pages Limited (TSE: Y), a Canadian digital media and marketing firm, has long been a poster child for the decline of traditional media. Yet despite its shrinking revenue base, the company has maintained a dividend of $0.25 per share since at least 2023. For income investors, this creates a compelling—if risky—opportunity. The question is whether the company's cash flow trends can sustain this payout in the face of persistent revenue declines. Let's dissect the numbers.

The Revenue Decline: Bending the Curve or Just Slowing the Fall?
Yellow Pages' total revenues have been in freefall for years, but the latest reports suggest a slight deceleration in the rate of decline—what management terms the “bending of the revenue curve.” In Q1 2025, revenue dropped 7.6% year-over-year to $50.8 million, an improvement from the prior quarter's 8.1% decline. This stabilization is partly due to higher average spend per customer (up 5% in print due to price hikes) and a slowdown in customer attrition. New customer acquisitions rose 6% in Q4 2024, though digital customer counts continue to shrink.

However, the company's core business model remains under siege. Digital revenues (which make up 80% of total sales) fell 6.8% in Q1 2025, while print revenue plummeted 10.5%. This imbalance underscores the fragility of Yellow Pages' reliance on legacy products. Investors must ask: Can this “bending” hold, or is it just a temporary reprieve in a long-term downward spiral?

Backtest the performance of TSE:Y when 'buy condition' is triggered on quarterly earnings announcement days where the reported YoY revenue decline rate improves compared to the prior quarter, and 'hold for 30 trading days', from 2020 to 2025.

Cash Flow: A Delicate Balancing Act
The dividend's sustainability hinges on cash flow. Here, the picture is mixed but not entirely dire. Despite a 7.6% revenue drop in Q1 2025, Yellow Pages reported an Adjusted EBITDA of $11.9 million—a 23.4% margin. While this is down from 27.8% in Q1 2024, the company has slashed costs aggressively. Workforce reductions and operational efficiencies have offset some revenue losses.

Cash flow from operations, however, is a weaker metric. It fell to $3.3 million in Q1 2025, down from $5.5 million a year earlier, primarily due to lower EBITDA. The company's $49 million cash balance, however, provides a buffer. Management has also reduced contributions to its pension plan, freeing up cash.

The key FCF metric—Adjusted EBITDA less CAPEX—stood at $11.4 million in Q1 2025, a 22.5% margin. While this is down from prior years, it still exceeds dividend payments (the $0.25 quarterly dividend equates to roughly $10 million annually). Provided revenue declines don't accelerate further, the dividend may remain viable—but only just.

The Risks: Why This Is a High-Reward, High-Risk Bet
The positives are clear: a 5% dividend yield (at current prices) and a cash-rich balance sheet. But the risks are manifold.

1. Revenue Uncertainty: If the “bending of the revenue curve” proves temporary, margins could collapse further. Digital customer losses remain unchecked, and the print business is a shrinking relic.
2. Dividend Pressure: While FCF currently covers the dividend, even a small revenue setback could force a payout cut.
3. Pension Liabilities: Though the pension plan's wind-up ratio is nearing 95%, legacy obligations could still haunt future cash flows.
4. Valuation Risks: The stock trades at a P/E of 12x, but with earnings declining, this multiple could expand rapidly if profits fall further.

The Investment Thesis
Yellow Pages is a classic “value trap” candidate—appearing cheap but failing to turnaround. However, for aggressive income investors willing to accept the risks, a small position could be justified. Here's how to approach it:

• Buy the dip: If the stock falls below C$8 (a 20% discount to its recent C$10 range), the dividend yield jumps to 6.25%. Historical backtests suggest that when the YoY revenue decline rate improves, the stock has delivered an average return of [X]% over the subsequent 30 days, with a [Y]% hit rate and a maximum drawdown of [Z]%—though this strategy carries volatility inherent to the company's precarious position.
• Monitor FCF: Track whether Adjusted EBITDA less CAPEX stays above $10 million quarterly. A sustained drop below this threshold would signal dividend risk.
• Watch customer metrics: New customer growth (even in print) and stabilized attrition rates are critical to long-term viability.

Final Verdict
Yellow Pages is a high-risk, high-reward play. The dividend is sustainable only if the revenue decline flattens and costs stay under control. Investors should treat this as a small speculative position, with strict stop-losses. For those willing to bet on a turnaround—or simply to collect a 5%+ yield while it lasts—Yellow Pages might be worth a cautious look. But remember: in a dying industry, even the best-laid plans can falter.