A number of dividend increases were announced in the week leading up to December 2, and on December 3, Disney announced what amounts to a huge dividend increase. DIS announced a 50% increase, from 40 cents a share to 60 cents a share.
The move brings Disney’s yield up to 1.6% — and it’s only an annual dividend, so many think that the stock doesn’t make a good choice for an income portfolio. And, in a sense, this might be the right assessment. However, when building a successful long-term portfolio, sometimes a huge income in the form of dividends isn’t the only thing to consider.
Is Disney a ‘Buy’ Right Now?
If we put an 15 P/E on Disney, then, on projected 2015 earnings of $4.43 per share, and factor in 1.2% compounded dividend yield reinvested, we get a price target of $72. That’s an amazing total return of 120% from here, suggesting Disney falls into the category of both a value and a growth stock.
It’s an interesting analysis, and there might be other companies in a similar position to Disney right now. If it’s a good deal, you could buy now, and receive a little bit of income from the dividends in the interim, waiting for Disney stock to rocket higher. However, holding on to the stock might make it more valuable in the long run – if it really does appreciate as some expect.
Adding a few such investments to your portfolio might make sense, since they can be sold later for higher profits. And, of course, along the way you can see some addition to your income.
A dividend says a lot about a company, and the big Disney increase could be seen as an indication that Disney feels secure in its situation. The fundamentals at Disney, with its various entertainment properties, appear to be strong. Even the stinker that was Cars 2 doesn’t seem to be causing a lot of problems for the company. After all, it’s got Marvel and ESPN and a number of other popular shows.
So, even though income is important to an income portfolio, it’s worth considering companies that will provide earnings down the road. Disney just might be one of them.