The Walt Disney Co. (DIS, Financial). This 92-year-old Los Angeles-based diversified entertainment conglomerate is the kind of company that does not fire you up like a tech major such as Apple (AAPL, Financial). Neither does it fire up your imagination the way a disruptor such as Amazon (AMZN, Financial) or Tesla (TSLA, Financial) does. The name itself conjures up fond memories of childhood for most of us, but the age of the company alone will tell you that this is an entity that goes about its business largely under the radar —Â and keeps moving forward every decade.
The entertainment industry has gone through many metamorphoses in the last hundred years, but Disney remains as relevant as it was 90 years ago.
From its humble beginnings in animation production, Walt Disney Co. has now built itself into a conglomerate of cable and broadcast television networks, radio stations, parks and resorts, movie production, consumer products, merchandise, and so on. Though it has steadfastly kept its focus on the entertainment side of things, it has been adding little by little to the lineup it has, and it has been extremely successful so far.
A look at the numbers
Walt Disney added nearly $20 billion to its top line in the last 10 years: From $34.28 billion revenues in 2006, the company has grown it sales to $52.46 billion in 2015. That the company was able to grow revenue right through the great recession of our times stands as a testimony to the kind of business empire it has created over time.
This is a large company with nearly $160 billion in market capitalization and more than $50 billion in annual revenues.
Despite the consistent successes it has seen over the decades, this is not a company that you can expect to keep growing at double-digit rates. As Walt Disney moves into the next decade, a reasonable assumption would be in the 5-10% range — similar to what it has shown over the last decade.
The biggest advantage Walt Disney has is the diversified nature of its line up. Media Networks brought in $23.26 billion in 2015, accounting for 44% of total sales; Parks and Resorts came in at 31%, or $16.16 billion; Studio Entertainment contributed 14%, or $7.3 billion; and the rest came from Consumer Products and their Interactive division.
Although broadcasting brings in most of the money for the company, the diversified nature of its business lines does provide a wide enough moat for Disney to stay in business for a long time.
This is as traditional as it can get for a company. This is not an industry where technology disruption can wipe out a solid company. The stay-ability of its business empire is huge, and its scale has put it in a place where it will be able to expand wider and deeper, while having many individual and smaller competitors, instead of one big competitor. This is one of the key factors to look for when selecting companies to add to a dividend portfolio, and Disney’s business empire certainly ticks that box for any investor.
With payout ratios well below the 50% mark and free cash flow doubling since 2009 to reach $6.6 billion in 2015, Disney’s dividends are not only safe, but look well set to continue their growth for the next five to 10 years at minimum.
Source: Dividend Empire
Â
Investing in Disney
Disney’s success is built on the imagination and marketing genius that was Walter Elias Disney. Born at the turn of the last century, Disney’s high standards of production and quality are imbibed into the fabric of the company itself.
If you want solid, long-term stability as well as growth, then DIS is the ticker for you. Don’t expect phenomenal top-line growth, but do expect it to keep increasing its dividends over time. Its share price has softened since its 2015 peak of around $121, and it currently trades in the sub-$100 region. But there is some immediate strong upside to this stock with Disney Shanghai, Olympic coverage, the presidential elections and gains in advertising.
Disclosure:I have no position in any of the stocks mentioned, and no intention to initiate any position in the next 72 hours.
Start a free 7-day trial of Premium Membership to GuruFocus.
