Updated: Dec 24, 2022
In 2020 Disney suspended its' dividend payments during the COVID-19 pandemic. A smart business move for company that had to shutter its' global theme parks and suspend its' cruise lines. Continuing to pay a dividend during those trying times would have crippled, if not broken the company. When will Disney's dividend return? That's often a question I see on Twitter and Reddit. My portfolio is set for 3% Disney and I've considered investing my December allotment in the company during the recent downturn in stock price. Is now a good time to add to or establish a position in Disney? Let's take a look at the fundamentals.
Table of Contents
First, let's take a look at what Disney's dividend looked like prior to the cut. Disney's dividend yield was around .75% which isn't bad for the growth giant that it is. Disney had been paying a semi-annual dividend for several years around $1.70 per share. Disney's dividend was costing the company around $2,500,000,000 per year to sustain which was sustainable given the massive amount of earnings they were bringing in. Below is a chart that shows the dividend cost for 2018, 2019, and 2020.
Disney's P/E ratio is hovering around 58x which is significantly higher when compared to historical 3Y, 5Y, 10Y, 15Y, and 20Y averages. The ratio should come back down as Disney's earnings increase as they recover from the COVID-19 pandemic. This value doesn't sway me much now that the parks are reopening and the vaccine is slowly returning us to our new normal.
Disney's revenue is still trailing slightly below the values seen prior to the pandemic in March 2020. I'll be keeping a close eye on revenue during Q4 2021 and 2022 to see how revenue recovers as we move forward. I'd like to see sustained revenue around the current levels and rising in the coming year.
Looking at Disney's profit paints a worse picture as the company's profit has just returned to the positive side around July of 2021. Again, this should continue to increase as the parks and cruise lines return to normal operations. Disney has also done an excellent job leveraging its' Disney+ platform to keep the profit rolling and has a steady plan for releases in the next few years.
Free Cash Flow
Disney's free cash flow is hovering around $2B which you might remember as close to the cost of the dividends they were paying in the past few years. Had they continued to pay the dividend they would have easily slipped into negative FCF values. Again, cutting the dividend was smart move by management and was ultimately the right move for the long term health of Disney. Again, I'll be keeping an eye on free cash flow into 2022.
Is Disney a buy at current prices?
Disney recently gapped down in price which mirrors the gap up in price that occurred in January. Disney is currently sitting at $151 which is around 25% lower than its' high around $201 earlier this year. Disney is currently resting on a support at the .618 FIB @ $150~. If you're considering buying this dip I'd wait to see if it breaks through the support as it could fall as far $135 where it could gap down again to $127 to fill the gap made in November. The stock price is most likely going to hang out here before heading lower. I'll be looking for confirmation of it settling above $160 before adding significantly to my position. If it drops below the .618 FIB I'll wait to see if it gaps down before adding from there.
When will Disney's dividend return?
Disney's current plan from the CEO is to focus on growing the business it currently has prior to returning as a dividend paying company. Again, this is great choice for shareholders as Disney is a titan in its' industry and funneling capital into its’ current business will ensure continued growth for years to come. Additionally, as we saw above if Disney were to restart its’ dividend it would barely have enough capital to cover the cost. Establishing a newer dividend at a smaller yield wouldn't do much for the company in terms of growth or in terms of attracting new investors. Shareholders want to see how Disney recovers and moves past the pandemic as they rebuild their foundation. I would estimate that Disney won't bring back its' dividend for another 3-5 years. I expect 2025 to be the earliest date for the possible return of the dividend.
Disney is a solid investment for most portfolios and I can't see them losing any major footing in the next twenty years. As stated above, if you're trying to buy the dip I would wait for confirmation in price direction before making any moves inside your portfolio. For the dividend investors in the room, I'd wait if you only want Disney for their dividend as it could be several years before those return. I plan to see if the price continues lower to average down on my established Disney position. If it continues lower I may invest more which would cause my position to exceed the 3% value I currently have set for Disney. I won't pass up the opportunity if the price is right.
What are your thoughts?