Disney (DIS) investors have long praised the Disney dividend that is paid on a semi-annual basis for shareholders, but have recent moves by the media and entertainment conglomerate put the Disney dividend in a more “back seat” position? As Disney positions itself for the next era of media and entertainment consumption, the company has made huge bets – in many cases, bets that most analysts praise the company for – that will likely take investors’ eyes off regular dividend income for the next few years and instead on various growth metrics. In this article we’ll look at Disney’s business, the Disney dividend and what we can expect as dividend investors moving forward.
The Walt Disney Company is one of the most famous companies in the world, and also one of the most valuable with a market capitalization of over $260 billion1. While Disney is most well-known for its children movies, especially its Disney Princesses, it has long since expanded its media empire to include National Geographic, ESPN, Pixar, Marvel Studios, and Lucasfilm. Disney is now one of the largest media companies in the world, and very likely the most influential.
Disney’s latest major acquisition was buying 21st Century Fox. While this acquisition was announced a few years ago, it was only finalized in 2019. This mega-merger gave Disney rights to famous brands like The Simpsons, Fantastic Four, X-Men, and many more, though it did not include the Fox News Network2. With this acquisition, Disney can be rightfully called the most important media company in the world today.
But gaining so much intellectual property is not cheap – Disney paid an eye-popping $71 billion for its new Fox assets. The price was increased by about $10 billion after Disney got into a bidding war with Comcast2,3. While Disney won that fight, the result was an increase of Disney’s debt from about $20 billion to over $46 billion – the result of issuing debt for the acquisition as well as taking on almost $20 billion of debt from Fox itself4. Investors are split on the benefits of this acquisition, since it definitely gave Disney great intellectual property, but the heightened levels of debt are concerning.
So, why did Disney spend so much for Fox? Disney’s CEO Bob Iger has clearly said that his motivation was to position Disney for dominance in the streaming industry5. As customers have more and more options for streaming, the key factor in determining which company will dominate is who has rights to the best content. By buying Fox, Disney was able to bolster its library prior to launching its new streaming platform – Disney+.
Disney+ is a major new platform that the company has been working on for several years – investing over $3 billion on the technology and content (not including acquisitions like Fox and Lucasfilm)6,7. By adding Fox to its ranks, Disney can now comfortably compete with the likes of Netflix, Hulu and Amazon. The company is even following Netflix’s lead and producing its own direct-to-streaming content like the Madalorian (part of the Star Wars franchise that Disney spent $4 billion to buy a few years ago7). While this has and will continue to dampen short term earnings, the moves have been well received by the investing community. Disney+ had 10 million subscribers sign up on the very first day it was available. At about $70/year for a basic subscription, that’s at least $700 million in revenue from just day one. The company is targeting 60 – 90 million subscribers by 2024 (and might hit that target 2 years early according to some analyses)8.
What has all this meant for Disney stock? Your guessed it – the stock has risen by over 4x over the past ten years, from about $28 to $146. Since announcing its acquisition of Fox in December 2017, Disney stock has risen almost 30%1. Clearly, investors have been pleased with Disney’s direction of late.
Now that we have reviewed the recent history of Disney and its financials, let’s take a look at its dividend.
Disney Dividend Quick Facts
Previous Disney dividend payout:
- Last dividend payout per share: $.88
- Last dividend payment date: January 16, 2020
- Last ex-dividend date: December 13, 2019
- Trailing Dividend Yield: 1.2%
Next Disney dividend payout:
- Next dividend payout per share: $.88
- Next dividend payment date: July 25, 2020 (estimated)
- Next ex-dividend date: July 5, 2020 (estimated)
Disney Dividend History
The Walt Disney Company has a long dividend history: it has paid a dividend every year for several decades1,4. Disney’s dividend has increased significantly over the past ten years in particular – from $0.35 a share in 2010 to $1.76 a share in 2019, an increase of over 4 times4. This increase has almost exactly mirrored the increase in its stock price, indicating that company leadership is working to maintain the stock’s dividend yield for shareholders1.
Disney Dividend Analysis
While Disney has significantly increased its annual dividend recently, its dividend yield is not stellar – averaging about 1.27% over the last 10 years1,4. This has not depressed its overall equity return, since the price appreciation has been so strong. However, much of this price appreciation has been due to the major acquisitions Disney has made over the last few years – buying Marvel, Lucasfilm, Fox, etc. Now, after paying over $70 billion for Fox, Disney is has about $47 billion in debt and is less likely to be able to make such large acquisitions for some time in the future3,4. Given this, the price appreciation is almost certainly going to slow significantly from its breakneck pace of the past decade, and the dividend yield will start to become more important for investors.
While Disney’s current dividend yield is not much to smile about, it has been increasing over the past decade. From 2010 to the end of 2014, Disney’s average dividend yield was 1.2%, but in the last five years the average dividend yield was 1.4% – and increase of about 16.5%2,4.
Disney’s dividend payout ratio has been much less steady than its dividend yield. The payout ratio started in 2010 at 17% and ended 2019 at 28%4. This is quite a positive development for investors, as they are getting more absolute returns from the company’s dividends, and the company is still not paying out an unsustainable level of its earnings.
Disney’s dividend coverage ratio has also significantly changed over the last ten years, from 5.9 in 2010 to 3.6 at the end of 20194. Again, this has been a positive development for investors who are getting access to more cashflow. And the company is still able to cover its dividend very well, so there is no reason to be concerned about the dividend’s sustainability at its currently level.
Taking into account all this information, it looks like Disney is somewhat willing to increase its dividends to keep pace with its increasing stock price. But they have given no indication that they intend to significantly increase the dividend, so investors should not expect much dividend growth in the near future – especially with how much debt Disney recently took on to buy Fox. Investors should instead look into the prospects of returns from further price appreciation and make their investment decision mostly based on those expectations rather than dividend growth potential.
Disney Dividend Risks
Right now, there do not appear to be many major risks to Disney or its dividend. The company is highly profitable and is seeing increasing earnings per share (EPS) in nine of the last 10 years4. Disney is also heavily investing in its future, showing that this short-term profit is not coming at the cost of long-term growth and profitability.
However, there is somewhat of a risk in the significant level of debt that Disney now has since its acquisition of 21st Century Fox. Before this acquisition, Disney had about $21 billion is debt. After the acquisition, the company has almost $47 billion in debt – and increase of 125%4. Undoubtedly, this is going to cost Disney billions of dollars over the next several years (Disney itself estimates the annual interest costs to be about $2 billion4), and investors should absolutely keep an eye on how the company pays this down over time.
Fortunately, this debt did not come without valuable assets in exchange. Disney’s total assets rose from about $100 billion before the acquisition to about $193 billion after it – an increase of 93%. And the company’s total debt/total assets ratio has not changed to an alarming level: it was 18% in 2010 and rose to 24% in 2019 – a increase of about 33%4. While an increase in debt of this amount is not ideal, the overall ratio is not so high as to pose a major risk to the company or its dividend. Investors should watch this ratio, but it should not deter them from buying Disney stock.
More Thoughts On Investing In Disney (DIS)
While much of our focus here has been on the Disney dividend that comes with holding Disney’s stock, future moves in this stock are going to almost entirely come down to quarterly reports on growth of the new Disney+ platform. Just as Netflix (NFLX) stock moves every quarter with news released by Netflix management regarding subscriber growth, much of Disney’s stock moves will come down to similar news flow.
This shouldn’t surprise anyone. Disney management has made it clear both in word and action how important Disney+ is to the future of the Disney business. DIsney is staking much of its future on the direct-to-consumer business of Disney+, and it’s not just the revenue that comes from it. Disney+ is to become the focal point, the crux, of much of its operations powering future revenues from its theme parks, cruise lines and other businesses. By having the most direct relationship it ever has with its consumers, Disney+ can power revenue throughout the Disney business for decades to come. Disney+ subscriber growth both now and in the years to come is the most important metric to watch for Disney investors and it’s not even close.
Dividend investing just means that as an investor you buy stock in companies that pay out dividends on a regular basis. There are several benefits to dividend investing, but the main one is that you get a steady stream of cash flows while still owning the stock. So, while usually equity returns are only on paper until you sell the stock, dividends allow you to get real returns before ever having to sell the stock. In other words, you get two sources of returns: the dividend and price appreciation when you sell the stock.
Dividend investing can take a few different forms. The broadest approach is to simply invest in dividend-bearing stocks without much differentiation beyond that. This is generally called ‘income investing’ because investors see the dividends they receive as ‘income’ off their investments (similar to rental income from properties you own – you get income without having to sell the asset). Another approach is called ‘growth dividend’ investing, and this is where investors try to buy stocks which already pay a dividend, but which are likely to increase the dividend in the future. That way, investors can get a return on their investment beyond just the current dividend and price appreciation – the growth becomes almost like a third type of return on their investment. Finally, some investors will follow a ‘dividend re-investment’ strategy, which means they will always re-invest the dividend they receive into buying more of the same stock in order to grow their portfolio.
Dividend investing carries all the usual risks of equity investments, but also a few which are unique. One risk of focusing on dividends is that you miss out on great investment opportunities just because a company doesn’t pay a dividend today. Dividends are paid out of company profits, so a company that has less profits is less likely to pay a dividend. However, it could be that the company has less profits because it is heavily investing in its future. If that is the case, then such non-dividend paying companies might actually be more likely to have strong profits in the future, leading to a higher stock price and possibly a dividend. In addition to missing good investment opportunities, too strong a focus on dividends can also have you make bad investments. There are cases in which a company uses a high dividend to compensate for a poorly performing business or stock. If investors get too excited about an apparently above-market dividend, they may fail to properly research the company and find out if the business itself is doing well or not. Lastly, dividend investing may lead investors to not have a well-diversified portfolio, which can lead to both higher risk and lower returns.
There are several ways to analyze a dividend’s risk and return profile. The first ratio to look at is the dividend yield, which is the annual dividend amount per share divided by the stock price. This measures the annual rate of return you are getting from just the dividend – not the stock price going up or down. Next, you should take a look at the dividend payout ratio, which is how much of a company’s profits are being paid out as dividends. This is calculated by dividing dividends per share by earnings per share. Investors have differing opinions on an ‘ideal’ payout ratio, but in general agree that anything above 50% is probably unsustainable over the long run. This is because a company paying out such a high percentage of their profits as dividends either is failing to invest profits in profitable business ventures or has no profitable business ventures in which to invest. Either way, it’s a bad sign over the long term. A closely related ratio to look at is the dividend coverage ratio, which is just the inverse of the dividend payout ratio. The coverage ratio shows how many times the company could pay its dividend, so a higher number is generally preferred as an indication of the dividend being secure over the long term.
Lastly, as an investor it is important to know the dates that affect how and if you will receive a stock’s dividend. The important dates for dividends are, in order:
Declaration Date -> Ex-Dividend Date -> Record Date -> Payable Date
The Declaration Date is when a company officially announces it will pay a dividend. The Ex-Dividend date is the date that determines who actually gets the dividend. If you purchase the stock on or after this date, you will not receive the next dividend. The Ex-Dividend is usually one business day before the Record Date, which is date by which you must be on the company’s records as a shareholder in order to receive the dividend. Last, the Payable Date is when the dividend is actually paid9.
Frequently Asked Questions
How much is Disney’s dividend?
Disney is currently paying $.88 per share on a semi-annual basis for a total of $1.76 per year. Disney last increased its dividend amount in 2018. Future increases are unknown at this time.
How often are dividends paid?
Dividends are typically paid quarterly by most companies, however, Disney pays its dividend on a semi-annual basis (in January and July of each year).
What is the ex-dividend date for Disney?
To capture the dividend payout, an investor must own the stock prior to the ex-dividend date. Disney’s last ex-dividend date was December 13, 2019 for the January 16, 2020 dividend payment. As such we can anticipate the next ex-dividend date will be roughly July 5, 2020 for the July 25, 2020 dividend payment. When Disney declares the next dividend, these dates will become official.
- “The Walt Disney Company (DIS).” Yahoo Finance, Yahoo Finance, 05 January 2020, https://finance.yahoo.com/quote/DIS/.
- VanDerWerff, Emily Todd. “Here’s What Disney Owns after the Massive Disney/Fox Merger.” Vox, Vox, 20 Mar. 2019, https://www.vox.com/culture/2019/3/20/18273477/disney-fox-merger-deal-details-marvel-x-men.
- Castillo, Michelle. “Disney to Buy 21st Century Fox Assets in a Deal Worth More than $52 Billion in Stock.” CNBC, CNBC, 14 Dec. 2017, https://www.cnbc.com/2017/12/14/disney-to-buy-21st-century-fox-assets.html.
- “Investor Relations.” The Walt Disney Company, The Walt Disney Company, 2020, https://www.thewaltdisneycompany.com/investor-relations/.
- Jarvey, Natalie. “Disney Over the Top: Bob Iger Bets the Company (and Hollywood’s Future) on Streaming.” The Hollywood Reporter, The Hollywood Reporter, 19 Oct. 2019, https://www.hollywoodreporter.com/features/bob-iger-bets-company-hollywood-s-future-streaming-1247663.
- Faughnder, Ryan, and Meg James. “Disney’s Massive Streaming Gamble Has Arrived. It May Change the TV Industry Forever.” Los Angeles Times, Los Angeles Times, 12 Nov. 2019, https://www.latimes.com/entertainment-arts/business/story/2019-11-12/disney-plus-streaming.
- Krantz, Matt, et al. “Disney Buys Lucasfilm for $4 Billion.” USA Today, USA Today, 31 Oct. 2012, https://www.usatoday.com/story/money/business/2012/10/30/disney-star-wars-lucasfilm/1669739/.
- Low, Elaine. “Could Disney Plus Reach 60 Million-90 Million Subscribers Earlier Than Expected?” Variety, Variety, 19 Nov. 2019, https://variety.com/2019/tv/news/disney-plus-subscribers-60-million-goal-1203408455/.
- “Ex-Dividend Dates: When Are You Entitled to Stock And Cash Dividends.” Investor.gov, Securities and Exchange Commission, https://www.investor.gov/additional-resources/general-resources/glossary/ex-dividend-dates-when-are-you-entitled-stock-cash.