If you're searching for good dividend stocks to invest in, take the time to consider media giant Walt Disney (DIS 0.53%). The stock isn't often viewed as a strong bet for dividend investors thanks to a volatile history for the company's dividend, which includes several pauses in its annual increases and some changes in the number of times a dividend is paid each year. But Disney's impressive overall business, along with its more consistent increases recently, make the stock attractive as a potential income investment these days.
Here are four reasons why investors should consider betting on Disney's dividend.
1. A 1.5% dividend yield
First, there's Disney's 1.5% dividend yield. Yes, it's below the average of 1.8% for stocks in the S&P 500, but it's still meaningful. In addition, this yield is significant when paired with Disney's dividend's growth potential, as you'll see below.
2. Robust dividend growth
Management's willingness to increase its dividends every year recently gives investors a reason to bet on further dividend growth.
Since switching to a semi-annual payout in 2015, Disney's dividend has increased at an average annualized rate of about 9%. And the company's most recent dividend increase was announced last November when it raised its semi-annual dividend payout by 7.7%, from $0.78 to $0.84.
Backing out five years, Disney's increase in total dividends paid each year is even more impressive. During this period, dividends paid each year have increased at an average rate of 21%.
3. A 25% payout ratio
Looking beyond Disney's historical dividend growth, another reason to expect more growth in Disney's cash payouts to shareholders is because the House of Mouse can easily afford it. It's currently only paying out 25% of its earnings in dividends. With a payout ratio this low, there's no reason for Disney to stop increasing its dividend -- at least not in the foreseeable future.
4. Strong business performance
Perhaps the best reason for Disney investors to expect more dividend growth is the company's strong bottom-line growth recently. Disney's earnings per share, when excluding a net benefit from the recently passed Tax Act, increased 18% year over year in the company's most recent quarter and 21% in the trailing-nine-months compared with the year-ago period. Similarly, Disney's trailing-nine-month free cash flow is up 19% compared with the year-ago period.
Disney's strong business also is evident by looking over the company's business segments. In the trailing nine months, Disney's media networks, parks and resorts, and studio entertainment segments saw revenue rise 3%, 11%, and 13%, respectively, compared with the year-ago period. Together, these segments account for 92% of revenue.
Disney's consumer products and interactive media, which accounts for the rest of the company's top line, is the only segment that saw revenue decline during this period. Trailing-nine-month consumer products and interactive media revenue declined 2% year over year.
When viewed together, Disney's 1.5% dividend yield, strong dividend growth, low payout ratio, and solid business performance make the media giant look like a good investment for dividend investors.