Is Disney A Good Dividend Stock?

Is Disney A Good Dividend Stock? History shows that stocks paying a dividend outperform those that do not. Professor Jeremy Siegel of the Wharton School of the University of Pennsylvania has proven that most of the gains last century came from reinvested dividends not share price gains.

And the companies paying dividends are normally quite profitable with a great brand backbone. It’s this backbone of several brands that fall under its umbrella that make Disney a good stock for dividends.

Or, at least, it was. When COVID-19 began to tear up all the promise that several companies were showing for 2020, many companies’ stock prices plunged into the depths, leaving investors unsure what, if any, recovery was to be seen.

What About Disney?

The Walt Disney name has been on the lips of households since the late 1930s when the studio released its first completely animated movie, Snow White and the Seven Dwarfs.

After the movie’s success, the studio went on to present more critically acclaimed films, such as Fantasia (1940).

By the 1950s, the company was so prosperous, it began providing dividends to its shareholders. A small, barely known cartoon studio made the jump to entertainment empire.

Unfortunately, global events have brought the company’s dividend payments to a screeching halt for the near future. Around the world, theaters, amusement parks, and other entertainment venues have been closed.

These venues equated to almost half of Disney’s entire annual revenue for Fiscal Year 2019. In May 2020, the Walt Disney Company announced the next dividend payment would not be issued. 

If the company resumes dividend payments, dividends would not be issued any earlier than January of 2021.

Is Disney Dividend a Value Trap?

Value traps are stocks that look inexpensive at face value due to such things as:

• Low trading volumes
• Low valuation
• Either or both of the above for an extended period of time

Value traps seem attractive if you’re looking for bargain stocks, but you also need to look at why the stock’s a bargain:

• Are you taking into account historical valuation?
• Are you comparing the stock to others in the same industry?
• Are you comparing the stock to the market overall?

A value trap stock earns its reputation when – after you’ve already bought shares – it continues to further plummet. Value traps are not good investments because they illustrate a company’s instability and foreshadows a limited growth potential.

Disney is not a value trap, thankfully. The company’s earnings-per-share has increased around 14% each year since 2010. The company also enjoys a market capitalization of nearly $200 billion. Of all companies based in the United States and traded publicly, Disney comes in at No.15.

So, it might seem like Disney couldn’t get any bigger – and recent events might also create anxiety – but this is one company that isn’t done growing. Not by a long shot.

Why Buy Disney Stock?

If for nothing more than nostalgia, Disney stock is worth looking into. The company’s shares recently floated back above their normal average, which had a lot to do with the entertainment giant reopening its Florida theme park, Disney World.

But this comes months after the company and many others like it were ravaged by the coronavirus-inspired crash. Disney had to close down its theme parks on both sides of the nation, as well as suspend all Disney cruises until further notice.

Previous Disney CEO, Iger, held his position for over 14 years, and in that time, he rallied Disney’s stocks over 400%, which equates to around 12% annually.

He updated the theme parks, brought several different movie franchises under the Disney umbrella, and, more recently, created Disney+ in response to the huge numbers of people around the world stuck at home.

After Iger’s announcement that he was stepping down in February 2020, the company stock lost 2%. Even with this drop, though, hard-hitting analysts kept up with their buy ratings.

Should You Sell Disney Stock?

The market is a fickle landscape, depending not only on outside influences but also on human nature. What’s hot right now?

Well, it’s tough for much to be really “smokin’” when the economy is just beginning to show signs of life again. Disney stock is still around 5% lower than it was about 200 days ago, and 22% lower than November’s highs.

So, Disney stock isn’t necessarily a buy at the moment, but it’s definitely one to watch. If you already own Disney and plan to hold for the long term, it’s probably best not to make any sudden moves. It’s important to watch the market overall but keeping an eye on public sentiment surrounding entertainment and such things is also a good indicator of Disney’s future successes.

Is Disney a Good Dividend Stock?

We’ll reiterate – at this point in time, it’s not a great stock for dividends due to the company’s recent halting of dividend payments through at least January 2021. But if you’re not in it for the dividends, Disney is still a great investment and addition to any portfolio focused on the long-term.

It looks like it may drop slightly in the near term as Florida continues to struggle with COVID and California’s theme park remains closed, but that can turn around.

New offerings like Disney+ streaming service and the overall strength of all Disney brands, it’s highly likely that the company will reinstate dividends eventually. 

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.