Walt Disney Co. (NYSE: DIS) has been one of the greatest growth stocks of the Dow Jones Industrial Average. With franchises from Marvel to Frozen to Star Wars, and with the growth of theme parks, Disney shares have risen exponentially. What stands out in Disney shares is that its stock has risen so much that its dividend yield is barely over 1% — but that dividend should grow handily over the coming decade.
24/7 Wall St. just featured nine great companies that can raise their dividends for the next decade or more. Disney was key among those companies. Its earnings power is very strong, and frankly its last sell-off looked artificially exaggerated. Disney’s chief financial officer even admitted to big accelerated share buybacks as a result of the weakness.
Disney has been raising dividends aggressively, from $0.35 per share in 2009 to $1.32 per share in 2015, and another dividend hike is likely coming soon. What has masked Disney’s great dividend growth is that the shares have appreciated to the point that the yield remains only 1.2%. It is as if management’s dividend’s hikes cannot catch up with the share price. After all, at $110 or so today, Disney’s stock price was under $35 just five years ago.
Disney pays out less than 30% of operating earnings as a dividend. Instead, it has used cash to buy great growth assets. Pixar, Marvel, Star Wars and so on, those do not come cheaply. And those films are not cheap to make either. Even the Muppets are back!
What you are hearing is why Disney was recently refreshed as one of the 24/7 Wall St. 10 stocks to own for the next decade.
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Disney’s sell-off was after Bob Iger’s post-earnings commentary about cord-cutters and some caution at ESPN. Honestly, both seem able to be beaten, if you consider Disney’s track record and position. ESPN faced some tough comparable numbers from the prior year, and Disney has its key role in Hulu to hedge against losses on ESPN, ABC or other media properties. Disney also has quite a bit of exposure to the cruise industry, what seems to be a secular growth trend.
For a big picture: Disney’s earnings growth is in the double-digits, with sales growth of more than 5% expected to remain ahead. If Disney decides to go easy on its dividend growth, it might just be because it decided to aggressively buy back more stock at depressed prices.
The long and short of the matter is that Disney’s dividend should double in the years ahead. The big question is whether that takes three years or seven years to come about.
One last future boost for Disney that still remains a bit elusive its online business. That has been slower to grow than it could have been, but its massive properties should make that an assured growth engine in the years ahead. And that online operation should be higher margin due to no costs for new content invention being necessary.
Disney’s stock price was last seen back up around $110.00, and it has a consensus analyst price target of $118.50. The highest analyst price target is all the way up at almost $150! The stock’s 52-week trading range is $84.15 to $122.08, and Disney now has a $183 billion market cap.
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