Walt Disney Company Stock Analysis

The Walt Disney Company (DIS) is an entertainment company operating in 5 segments.  The company operates media networks such as ABC and ESPN, Parks and Resorts such as Disneyland and Walt Disney World,  a Studio Entertainment segment with blockbuster hits such as the movie Frozen, a Consumer Products division and an Interactive Media division for video games.  The company is an entertainment giant that is rolling on all cylinders at the moment.

Recently, the Disney Company announced second quarter results for their 2014 fiscal year of $1.08 earnings per share.  These earnings results blew analyst expectations out of the water and were a 30% increase compared to the same quarter from previous year.  All of Disney’s business segments reported income increases in year over year comparisons.

Disney isn’t your typical dividend growth darling.  They only just now have a 5 year dividend growth streak, their dividend yield is down only around 1% and they pay dividends annually.  For these reasons (along with a couple others I’ll discuss later), Disney doesn’t get much love from dividend growth investors.

However, with the recent great performance of the company and the start of a dividend growth streak, I decided I wanted to look a little bit more closely at the media and entertainment giant.  As summer comes upon us, many families will begin planning vacations to the Magic Kingdom theme park to visit Mickey Mouse and the gang.  This seems like the perfect time to review The Walt Disney Company.


Dividend Growth and Current Yield

As I said above, Disney has only been growing their dividend now for 5 years.  The company pays their dividend out annually.  The last dividend they paid was $0.86 per share.  At the close of market on Thursday May 8th 2014, shares of DIS stock traded for $81.60.  This gives the stock a current dividend yield of just 1.05% (0.86/81.60).

The dividend yield leaves a little to be desired but lets take a look at recent dividend growth.

Disney has a 5 year dividend growth rate of 19.70% compounded annually.  The company’s most recent dividend increase was 14.67%.  The Walt Disney Company has been growing their dividend rate at a pretty solid pace recently.  Not only have they been growing the dividend rate at a decent clip, but the company only has a 19% payout ratio.  This shows that Disney should have plenty of room to continue growing their dividend rate.

One thing I would like to point out though is that Disney was growing their dividend rate for a few years leading up to the recession in 2008.  The company then paid 3 straight years of the same dividend rate.  They went through a tough time during the recession as many families had to cut back on entertainment and vacation plans.  The company froze their dividend rate at the time but was never forced to cut the rate.

Earnings Per Share Growth

The Walt Disney Company has also been doing a fairly good job growing earnings per share.  In 2003, DIS had earnings per share of $0.66.  In 2013, the company announced EPS of $3.38.  This gives the company a 10 year compound annual earnings per share growth rate of 17.74%.

More recently, Disney has grown EPS from 2012 to 2013 by 7.99%.  Disney has been doing a good job growing earnings per share for the investor.

In fact, based on the first 2 quarters results for FYE 2014, many analysts are raising their expectations for 2014 results.  Analysts are looking for growth of EPS around 20% this next year.

Net Income Growth

Disney has also done a decent job growing net income over the past few years.  The company has a 10 year compound annual growth rate of 17.06% for net income.  More recently, they grew net income by 7.99%.

In my opinion, Disney is doing a good job growing profits over the past decade.  With recent success, I’d look for them to continue growing.

Sales Growth

Sales revenues have been growing slightly slower for Disney over the past decade.  The 10 year compound annual growth rate of sales is 5.23%.  The most recent year sales growth came in at 6.54%.

I’d prefer to see sales growth more in line with net income growth.  However, the company has been increasing profit margins helping them grow the bottom line despite lower revenue growth.

Outstanding Shares

I like to see a decreasing trend in the amount of shares outstanding.  As company’s buy back and retire shares outstanding, it means that fewer shares are available.  Each remaining share is now worth a larger piece of the profit pie.

Over the past decade, Disney has decreased shares outstanding by around 12%.  However, recently the company has kept outstanding shares even.

Net Profit to Long Term Debt

The net profit/long term debt ratio tells me how many years worth of profits it will take to pay off the current long term debt of the company.  I like looking at this metric because it gives me an idea of whether the company has taken on too much debt or not.

Generally I look for this number to be less then 5 meaning if the company used all their earnings over the next 5 years they could wipe out all debt.

For Walt Disney Company, this net profit to long term debt ratio stands at about 2.06 for 2013.  This means that Disney would be able to pay off all their long term debt with a little over two year’s worth of net income.  In my opinion Disney has a strong balance sheet and is a very safe company with not too much debt.

Dividend Payout Ratio

The dividend payout ratio measures the dividend per share compared to the earnings per share.  How much of a companies earnings per share are they paying out to shareholders in the form of a dividend.

DIS currently has a dividend payout ratio at right around 19%.  The lower payout ratio gives me confidence in the safety of the dividend.  Disney has plenty of room to grow the payout to shareholders and should be able to weather any financial downturn without sacrificing their dividend rate.

The company has a low payout ratio and hasn’t been retiring shares lately.  It appears that Disney is retaining profits in order to reinvest back into itself.  The company continues to invest in technological improvements for support their media and gaming segments.

Price/Earnings Ratio

The P/E ratio is a metric I look at to determine if a companies current stock price is too high or within reason. b.  Typically the market P/E average is right around 14 so compared to the market in whole I might determine DIS to be slightly overvalued.

When looking over Disney’s historical P/E ratios, they have a 10 year historical average P/E ratio of 16.53.  Based on this historical average, it would appear that Disney is currently overvalued.  The historical P/E ratio has been held down because the company has traded at a lower valuation since 2008 and the recession.  However, with the recent run up of the market and Disney’s successful growth, the P/E has expanded and is now on the high side.

Return Projections

Disney had EPS of $3.38 in 2013.   The past EPS growth rate for Disney has been around 17%.  However, this past year the company only grew at a rate slightly below 8%.

Therefore I am going to use a conservative EPS growth rate of 10% over the next 10 years to figure out what 2024 EPS might look like.  This gives me an estimated EPS of $8.77 for DIS in 2024.

If The Walt Disney Company stock is trading at a reasonable P/E ratio compared to their history of 17 in 2024 then it will have a market price of $149.09/share (8.77*17).  This will give me an estimated annual return for Disney of 6.21% over the next 10 years.

If you would be happy earning a 6.21% return over the next few years along with collecting annually increasing dividend payments, then Disney might be an investment worth considering.

This is a very rough exercise based on growth estimates that may not come to reality.  Actual returns in DIS will vary depending on how well the company increases their earnings and how the market values Walt Disney Company stock in the future.


I’m interested in Disney.  I like the company.  It’s a fun company and I wouldn’t mind owning some shares.

However, there are a few issues I have with Disney.

First off, Disney has a short growth streak and a low dividend yield.  As a dividend growth investor, I’d prefer a higher yield and longer streak.

Second, Disney is very sensitive to recessions.  During the last recession, Disney’s bottom line took quite a hit as families were forced to cut back on travel and entertainment expenses.  The company recovered quickly after just 2 years however.  The stock took a hit and offered a fairly low valuation.  Recessions may be the time to pick up shares of this company while their bottom line suffers.  Now that things are firing on all cylinders, the market may be pricing Disney a little too high.

Third, I do feel like Disney is slightly over valued at the present time.  I’d prefer to get shares of Disney when they are trading closer to a 17 P/E ratio.  Anything below that and I may be backing up the truck and loading up.  However, right now they are quite a bit higher and I’m not sure future growth supports the higher valuation.

I feel strong about Disney.  The company is an entertainment giant and they continue to grow profits.  They have lots of great brands and blockbuster movie hits.  However, I can’t justify paying a higher valuation when the company has a dividend yield around 1%.

I like dividends.  I invest in dividend growth companies.  I like companies that pay out higher dividends and I like receiving those dividends quarterly.  Disney currently pays out a lower dividend yield and they only pay it out once a year.  I may get antsy waiting for the annual dividend.

In my opinion, Disney is a great company.  I just don’t believe they are the right company for my personal portfolio.

Do you have an opinion on The Walt Disney Company?  Please share your thoughts in the comments below!

Disclosure:  I do not own shares of DIS.

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