Walt Disney (NYSE: DIS) has come a long way since Walt Elias Disney founded the company in 1923. In 1937 Walt Disney released his first film, and the first animated film ever, Snow White and the Seven Dwarfs. It has been all uphill since then. Disney has expanded to become one of the biggest media entertainment companies in the world. They’ve absorbed companies like Pixar, Marvel, Lucasfilm, ABC, ESPN, and Hulu. Its steady earnings and safe business model make it a stable investment. Today, we’re going to review Walt Disney’s dividend history and safety…
Business Overview and Highlights
Disney is a $194 billion business. The company is based out of Burbank, California and it employs 201,000. Last year Disney pulled in $59 billion in sales and that works out to $296,000 per employee.
The company operates within the communications sector and maintains a solid credit rating (A) from the S&P. This allows Disney to issue cheap debt to grow the business and pay dividends.
On March 20th, after a year of deliberations, Disney finally acquired 21st Century Fox. Disney paid $71.3 billion to finalize one of the biggest media consolidations in history. An acquisition of this size further establishes Disney as a media magnate.
Walt Disney 10-Year Dividend History
The company paid investors $0.35 per share a decade ago. Over the last 10 years, the dividend has climbed to $1.68. That’s a 380% increase and you can see the annual changes below…
In 2015 Disney switched from an annual dividend to a semi-annual dividend. That 2015 dividend spike can be attributed to “significant increases in revenue,” according to Robert Iger, Disney Chairman and CEO.
Over the last decade Disney’s compound annual growth is up 17%. But over the last year, the dividend only climbed 7.7%. The slowdown in dividend growth isn’t a great sign. Although, Disney still might be a good income investment. Let’s take a look at the yield…
Current Yield vs. 10-Year Average
Walt Disney’s long history of paying dividends makes it one of the best dividend stocks around. This also makes the dividend yield a great indicator of value. A higher yield is generally better for buyers. Sustainability is also vital, and we’ll look at that soon.
The dividend yield comes in at 1.63% and that’s above the 10-year average of 1.38%. The chart below shows the dividend yield over the last 10 years…
The higher yield shows that investors have bid down the company’s market value. They might be expecting higher growth and payouts. But more often than not, the dividend yield is mean reverting with share price changes.
Improved Dividend Safety Check
Many investors look at the payout ratio to determine dividend safety. They look at the dividend per share divided by the net income per share. So, a payout ratio of 60% would mean that for every $1 Disney earns, it pays investors $0.60.
The payout ratio is a good indicator of dividend safety. However, accountants can manipulate net income. They adjust for goodwill and other non-cash items. Therefore, free cash flow is a better metric.
Here’s Disney’s payout ratio based on free cash flow over the last 10 years…
The ratio is a bit volatile over the last 10 years and the trend is up. The last reported year shows a payout ratio of 25.6%. A payout ratio this low means Disney’s board of directors have plenty of room to raise the dividend.
The $1.68 dividend per share, 1.63% dividend yield, and 25.6% payout ratio combined with the company’s solid business performance make Walt Disney a solid investment for dividend investors.
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