More Than a Mickey Mouse Outfit

12/21/2011 11:30 am EST


Glenn Rogers

Contributing Editor, Internet Wealth Builder and The Income Investor

It’s impressive that in the economic doldrums that have hit consumers across the globe hard, a company built on consumer-discretionary spending has fared so well, writes Glenn Rogers of Internet Wealth Builder.

Walt Disney Corp. (DIS) recently announced a big 50% hike in its dividend. While the yield is still only 1.6%, the move shows the confidence of the board of directors in the company’s future, and that has added to my good feelings about this business.

The long-term payout for Disney is only about 20% of the 2011 free cash flow. So the company could continue to raise dividends over the next few years without any difficulty.

But whether they do or not, this is an interesting well-run business that deserves a place in your portfolio.

The company is basically broken down into five business units:

  • The first is Media Networks, which is comprised of Disney and ABC TV, and which also includes the valuable ESPN franchises. With 2012 being an election year, its local broadcaster franchises will do very well from campaign advertising. It has millions of cable subscribers to the Disney Channel itself.
  • The second unit is Parks and Resorts, which includes the famous Disneyland and Disney World, as well as Paris and Hong Kong. This year the company broke ground on a new resort in Shanghai, the first in mainland China. The company also has two large cruise ships and a total of 42 hotels comprised of more than 36,000 hotel rooms.
  • The third business unit is Studio Entertainment. This includes their movie production business, Walt Disney Studios, and Pixar Animation (Steve Jobs’ former company). Late last year, Studio Entertainment acquired Marvel Entertainment, with its long list of action heroes like Spider-Man and the Hulk.
  • The fourth business segment is Consumer Products. It produces the numerous toys, books, fashion accessories, Disney games, and other related products that emerge from their hit entertainment franchises.
  • Finally, there is Disney Interactive Media, which is comprised of a vast array of web and mobile platforms which distributes the company’s content worldwide. They have the No. 1 family Web site along with a number of family-oriented gaming sites and video offerings.

Financially, the company is sound. In their recent fourth quarter and full year 2011 earnings statement, they reported EPS growth of 24% to a record $2.52, compared to $2.03 in the prior year. Net income for the year increased 21%, to a record $4.8 billion.

This is particularly impressive in light of the tough economy we have all been living through. The results will only improve as the economy strengthens.

The company is led by Robert Iger, who has brought quiet competence to the executive suite after the tumultuous years under Michael Eisner. The stock is up 54% under his tenure, compared to a 2% rise in the broad market. He’s only 60, so hopefully he’ll be around for at least five more years.

Despite the post-dividend bump, the stock is selling well below its 52-week high of $44.34. I think we could see a 30% move up over the next year. Buy with a target of $50.

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