Disney Just Increased Your Kid's Allowance

Posted: Dec 03, 2011 12:01 AM

The Walt Disney Company just surprised Wall Street with a 50% dividend increase to 60 cents per share, when the expected increase was to be 12%, to 45 cents per share. Broke and suffering corporations do not give away money like that.  As I’ve discussed all year, many American companies are in sound financial shape, despite the economy.  ”The company on Nov. 10 reported a 21 percent increase in fiscal 2011 profit to $4.81 billion, or $2.52 a share, on revenue that gained 7.4 percent to $40.9 billion.” – Disney Raises Dividend Most in 20 Years – Bloomberg.com, Dec. 1, 2011

Our job as investors is to ignore the news media dissonance and hype, and look at facts as we explore investment opportunities.

The Walt Disney Company (DIS, $35.99) is a worldwide entertainment company which owns theme parks, ESPN Network, Marvel Entertainment, equity interests in Euro Disney, Disneyland Paris and Hong Kong Disneyland, and other media and entertainment endeavors, including a planned theme park in Shanghai with a projected opening date of 2016.

The company has projected consensus annual earnings (EPS) growth of 14%, 15% and 14% for fiscal years 2012 through 2014.  The 2012 price earnings (PE) ratio is 12.4 based on projected EPS of $2.90 per share, and the dividend yield is 1.67%.

Disney is a large-cap growth stock in the consumer discretionary sector.  It has a 5 Star – Strong Buy rating from Standard & Poor’s and a 12-month target price of $45.00 as of a recent Nov. 26, 2011 research report.

Disney has a $41 target price and an Overweight rating from Morgan Stanley as of Nov. 29, 2011.

Citi Investment Research & Analysis has a $42 price target on Disney, and reported on Nov. 17, 2011, “…we remain buyers of the stock as Disney currently trades at under 11x our FY13 EPS of $3.25, which represents a discount to Disney’s historical PE multiple.”

The company was previously authorized to repurchase up to 400 million shares, and has thus far repurchased 228 million shares in 2010 and 2011, including 13 million shares in November 2011.  Disney has a 20% long-term debt to capitalization ratio and 66% of the stock is owned by institutions.

Disney stock has spent much of the last five years trading between $28 – $37, veering spectacularly during the 2008 Financial Meltdown to a low of $15.14, and climbing to a high of $44.34 during the early 2011 market run-up.  Barring unforeseen corporate or stock market turmoil, the stock is likely to continue trading $33 – $37 before retracing its early 2011 highs.

Stock investing is a volatile endeavor, and not for the faint of heart.  As always, readers should consult their investment and tax advisors to determine suitability, risk and taxation.  For more information, see The Benefits of Stock Dividends – www.GoodfellowLLC.com.  Potential website subscribers may access the stock reports via the one-month free trial subscription offer.