Disney (NYSE:DIS) is easily recognizable by both investors and consumers. Long a stalwart of American Culture many look to it as an important holding. Of recent past the Disney people have increased the dividend and are beginning to perhaps catch the eye of dividend oriented investors.
In the past five years dividend growth has been 16.46%. Normally this generates buy and hold activity from the dividend investing community. Management needs to maintain this pace in order to keep dividend investors engaged.
But here is the very big problem set.
The current dividend yield is 1.14%. Not exactly top of the list.
The current dividend pay-out is approximately 50% which can be considered generous. Increases from this level are unlikely.
The PE ratio sits at 20. Many would say that is fully valued.
Disney is involved in capital-intensive businesses. Cash is consumed easily. Parts of Disney are really a real estate play. Movies absorb tens and hundreds of millions before a nickel comes back. So a 50% dividend pay-out ratio will be difficult to sustain.
So if you want to believe the Disney dividend story you need to come to grips with the capex vs dividend pay-out scenario. Entertainment is brutally competitive. If push comes to shove and you know it will, the executives will roll the dice on capital-intensive movies or entertainment forms first and then promise to come back and reward the shareholder.
The product life cycle is orgasmically short before its fully exploited and then starts dribbling in as an annuity. This is not the stuff of classic dividend plays which have repetitive predictable cash flow.
But a trip to Disney World. Yeah you bet. Lets go.
George Gutowski writes from a caveat emptor perspective.