Disney’s Dividend Makes a Comeback: Is It Time to Buy Its Shares?

December 4, 2023

As the curtains rise on The Walt Disney Company (NYSE: DIS)’s latest financial act, the spotlight shines on a comeback story that is captivating investors. With CEO Bob Iger at the helm, Disney’s recent quarterly report and dividend reinstatement cast a spell of optimism. But is this enchanting narrative a sign for investors to take the stage?

Disney’s financials surpassed expectations with a sharp turnaround

Disney’s Q4 2023’s revenue rose 5% year-on-year (yoy) to US$21.2 billion, with diluted earnings per share soaring 173% to US$0.82, excluding one-time charges. These figures surpassed the analysts’ consensus estimates and marked a significant turnaround, especially considering the company’s challenges over the past few years.

The streaming business on track to turn profitable by Q4 2024

Disney’s streaming segment, a critical focus in recent years, has made substantial progress. The direct-to-consumer segment slashed its losses by 70%, with Disney+ adding 7 million core subscribers, reaching 112.6 million – surpassing analyst predictions. This, along with the recent price hikes for Disney+ and Hulu, has bolstered its average revenue per user, further accelerating its path to profitability. Disney continues to expect its streaming business to achieve profitability by Q4 2024.

A dual strategy with strong rebound in Disney’s theme park and cost-cutting measures

The theme parks, a longstanding symbol of Disney’s allure, have rebounded strongly, showing growth above pre-pandemic levels. CEO Bob Iger’s note about the doubling return on invested capital and improved guest satisfaction in domestic parks highlights Disney’s operational efficiency. Furthermore, Disney’s announcement of an additional US$2 billion in cost cuts, atop the previously announced US$5.5 billion, reflects a strategic approach to bolster financial health.

A new digital sports frontier with ESPN’s ambition

Disney’s plans for ESPN are ambitious. The aim is to transform it into a leading digital sports platform, and exploring strategic partnerships underlines Disney’s commitment to evolving with the changing media landscape. The planned 2025 launch of a direct-to-consumer version of ESPN’s flagship sports channel is a step towards countering the decline in cable subscribers.

Dividend’s comeback: A signal for income investors

The reinstatement of Disney’s dividend, suspended since July 2020, is perhaps the most striking development. After a three-year hiatus, the dividend’s return at $0.30 per share marks a pivotal moment in Disney’s financial journey. This resurgence, signifying strength and stability, is set to allure income investors back into Disney’s fold, potentially igniting a new era of stock demand.

Investment Verdict: Buy, Hold, or Pass?

Considering Disney’s improved streaming economics, theme park performance, aggressive cost-cutting, and robust cash flow, the company appears to be on a solid recovery path. With the stock trading at a significant discount compared to historical valuations, the current scenario may present a compelling buy opportunity for those who believe in Disney’s enduring magic and its road to recovery.

Disclaimer: ProsperUs Head of Content & Investment Lead Billy Toh doesn’t own shares of any companies mentioned.

Billy Toh

Billy is deeply committed to making investment accessible and understandable to everyone, a principle that drives his engagement with the capital markets and his long-term investment strategies. He is currently the Head of Content & Investment Lead for Prosperus and a SGX Academy Trainer. His extensive experience spans roles as an economist at RHB Investment Bank, focusing on the Thailand and Philippines markets, and as a financial journalist at The Edge Malaysia. Additionally, his background includes valuable time spent in an asset management firm. Outside of finance, Billy enjoys meaningful conversations over coffee, keeps fit as a fitness enthusiast, and has a keen interest in technology.

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