Walt Disney is one of the largest and diversified international companies specialising in entertainment, media, parks, resorts and various consumer products.
The company also operates highly popular amusement parks around the world, and also produces movies, cartoons and shows for kids and adults alike. With its highly recognised brand and a very profitable sports channel, Walt Disney was able to grow its net income and operating cash flows from 2010 to 2015 by a substantial amount.
With such a successful financial performance, the company has consistently paid, and increased, dividends year after year, making Walt Disney an attractive option for income-seeking investors.
Looking towards its dividends per share for instance, one may note that Disney raised its dividends per share from just over 23cUS in 2004 to $1.15 in 2014, which represents an average annual growth rate of 17 per cent.
The company paid dividends once a year before 2015; however, in June 2015, Disney declared a cash dividend of 66cUS per share for the first six months of the fiscal year 2015, and announced the company will pay dividends on a semi-annual basis. The 66cUS dividend per share therefore represents a 15 per cent increase on an annualised basis when compared to 2014.
While Disney does not state how it determines its dividends, the payouts are most likely contingent on the company's performance; with the probability of focusing on its ability to generate sufficient operating cash flows to cover its investment and financing requirements.
As of June 2015, the company has a short- and long-term outstanding debt of $15.3 billion that is mostly due beyond 2020, thus giving it ample room for financial maneuvering with its cash on hand balance of $4.5 billion.
Disney's dividend yield is dependent on the dividend policy established by the company's board of directors and on stock price changes. From 2004 to 2014, Disney's dividend yield ranged from 0.37 per cent in January 2005 to 1.04 per cent in February 2009.
Its average dividend yield from 2004 to 2014 was approximately 0.5 per cent. In July 2015, the company's dividend yield jumped to 0.75 per cent as a result of the 15 per cent increase in the annual dividends per share.
Moreover, since quarterly results as of June 27, 2015, did not meet analysts' expectations, there is growing concern over the company's stock price, as it decreased by about 20 per cent.
As a result of its stock price decline, Disney's dividend yield went up further to 0.9 per cent. At the end of September, Disney's dividend yield currently stands at 1.3 per cent.
Disney's low dividend yield is most likely due to its stock appreciation and the company's emphasis on stock buybacks rather than its dividends. From 2010 to 2015, the company bought back its own common shares worth $21.3 billion and is continuing its buyback programme as of September 2015.
The company's spending on the share buyback program by far exceeds cash dividends. Some companies, such as Disney, prefer generating shareholders' returns through share buybacks rather than paying cash dividends since buybacks typically defer taxes for investors.
Looking at Disney’s television and movie business lines together with its extensive franchising operations, one may note how the company has enabled an increase in its operating cash flows from $6.6 billion in 2010 to $10.7 billion for the trailing 12-month period ending on June 27, 2015. At the end of the day, the company is left with a sufficient liquidity cushion.
Despite recent challenges Disney remains in a financially solid position that enables the company to continue its dividend and share buyback programme.
Today, Disney enjoys a highly favorable position within media networks, additionally it also runs one of the most trusted channels among parents who subscribe to media content for their kids.
Disney is also generating an increasing amount of revenue from its characters by issuing franchising rights with Pixar, Lucasfilm Ltd., LLC. and Marvel, thereby expanding its portfolio of characters and appeal to a much broader audience.
Disclaimer: This article was issued by Steve Diacono, for Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri & Co. Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.