Let me preface this post by saying this- what a tumultuous beginning we’ve had in 2016! Investors were fearful for many reasons-including concerns over depressed oil prices and China’s lagging economy. But if you were one of the few people who wasn’t afraid and kept putting in money while others were pulling money out, you would likely be patting yourself on the back right now as you are reading this. Because you would know that the Dow and S&P500 are both up over 9% from the lows they hit in early February.
So while many were selling, I scooped up shares in a company that’s been on my watch list for a while; I purchased 12 shares of The Walt Disney Company (DIS) on 2/24/2016 for $93.41 per share.
The Walt Disney Company, more commonly known as Disney, is a well diversified multinational mass media and entertainment conglomerate. Founded on October 16, 1923 by Walt Disney and Rodney O. Disney as the Disney Brothers Cartoon Studio, the company soon established itself as a leader in the American animation industry. It has since diversified into the live-action film production, theme parks and television.
DIS operates in five segments (% of company revenue): Media Networks (43%) includes cable networks such as ESPN, Disney channel, Freeform and ABC; Parks (31%) which includes Disney World and Disney Land resorts, Spa Vacation Clubs, and Cruise lines; Studio Entertainment (15%) which includes all of the various franchises like Marvel Entertainment and Pixar; Consumer Products (8%) which includes the licensing and franchising of iconic logos and images owned by The Walt Disney Company; and Interactive (3%) which oversees various websites and interactive media owned by The Walt Disney Company and it’s subsidiaries.
Since The Walt Disney Company is so well diversified, they make their money in a multitude of ways. A few examples include advertising/sponsorships on media networks and interactive segments, ticket sales at theme parks and studio entertainment, licensing fees, and the sale of consumer products. Disney also does a wonderful job of integrating segments so that consumers of one segment are encouraged to purchase from other segments.
I know I’ve stated this at least twice already but let me say it again; The Walt Disney Company is extremely well diversified. That’s one of the things that really makes me keep a company under serious consideration- knowing that one part of the company could falter but understanding that there are other segments that can pick up the slack and keep the revenue machine going. Also the low debt on the balance sheet lets me know that DIS is primed for good financial health in the future.
- Revenue grew by approximately 5.66% over the last 5 years.
- EPS is 4.95 and has increased by 19.3% over the last 5 years.
- Dividend yield at time of purchase was 1.52% and DIS pays a dividend of $1.42 per share. DIS has been increasing dividends for 6 years and the payout ratio is currently 26.5%. This tells me there is still plenty of room for the dividend to grow at a healthy rate.
- Debt/Equity ratio: 0.29
The biggest risk that all anyone seems to talk about these days is cable “cord cutters” and the loss of subscriber fees. While ESPN and other popular channels make up a large percentage of the media networks segment revenue (and DIS overall revenue), the company is well diversified in other areas to make up for the potential loss of revenue from that segment. I also believe that just because people are cutting their cable subscriptions that it doesn’t mean they aren’t watching these programs; consumers are just using other resources (going online, using apps, etc.) to watch these programs so there is an opportunity for DIS to make changes and redirect consumers to platforms where they can charge them directly for these programs (like HBO has done with HBO GO).
- The P/E ratio at time of purchase was 17.8, which is lower than DIS’s 5 year average of 19.3.
- Morningstar valuation: $134, rated a 4 star “BUY”
- S&P Capital IQ valuation: $101, rated a 4 star “BUY”
The Walt Disney Company overall is an attractively valued high-quality stock. My hope is to continue adding to this position and let DIS serve as an anchor for my portfolio. They have a business model that is easy to understand, are well-respected as leaders in their industry, have a great balance sheet and have plenty of room to grow the dividend rate. Another clear winner, in my book!
This purchase adds $17.04 to my annual dividend income based on the current $0.71 semi-annual dividend.
Full Disclosure: Long DIS
Thanks for reading.
Images: Death to the Stock Photo with graphics added by One Woman’s Worth.