Studies have shown that dividend stocks have historically outperformed non-dividend paying stocks. Companies that pay regular dividends are usually very profitable, which points to a strong underlying business with a competitive advantage working in its favor.

Walt Disney (NYSE:DIS) has paid a dividend every year going back to the 1950s. The company grew from a small cartoon studio to a global entertainment empire with $78 billion in trailing-12-month revenue. 

However, Disney's long streak of paying a dividend is currently threatened by the recent closures of movie theaters and theme parks, which comprised about half of the company's annual revenue in fiscal 2019. To shore up cash on the company's balance sheet, management announced in early May it would forgo the next semi-annual dividend payment. 

Let's take a deeper look at Disney's recent dividend history and current financial situation.

A roll of cash sitting next to a piece of paper with the word dividends written on it.

Image source: Getty Images.

Disney's recent dividend history

Disney's most recent dividend payment was in January for $0.88 per share. The dividend is paid twice a year, so that gives an annual rate of $1.76. If Disney's semi-annual dividend was still instated, the current yield would be 1.5%, which is lower than the 1.93% yield currently offered by the average company in the S&P 500 index. 

Disney has paid a dividend for 64 consecutive years through 2019, but it hasn't always increased the dividend every year. Here's a look at Disney's recent dividend history between fiscal 2015 and fiscal 2019, showing the per-share amount paid each year and the payout ratio, calculated by dividing dividends paid per share by earnings per share. 

Metric Fiscal 2019 Fiscal 2018 Fiscal 2017 Fiscal 2016 Fiscal 2015
Dividend per share $1.76 $1.68 $1.56 $1.42 $1.81
Payout ratio 28.1% 20.1% 27.4% 24.8% 36.9%

Data source: Disney. Disney's fiscal year ends in September.

A great dividend stock should possess three things:

  • Cash-rich balance sheet
  • Low payout ratio
  • Long record of dividend increases

Although Disney hasn't increased its dividend every year, the dividend has risen along with the growth of the business. It's also a positive that Disney has maintained a low payout ratio.

DIS Revenue (TTM) Chart

DIS Revenue (TTM) data by YCharts.

A low payout ratio is ideal. It gives the company some flexibility to maintain the dividend or increase it, even during a rough year when the economy turns south. But a payout ratio that's too high would indicate the company may have trouble increasing the dividend under difficult circumstances.

Disney's payout ratio in fiscal 2019 was 28%, which is low compared to the S&P 500 average payout ratio of around 50% in the first quarter of 2020. Given Disney's relatively low payout, long streak of paying a dividend, and its strong brands that produce steady revenue streams every year, Disney might have been considered a great dividend stock before COVID-19 -- but it's difficult to make that case with the dividend currently suspended.

Disney's debt burden

The pandemic exposed Disney's balance sheet, which is debt heavy following the $71 billion acquisition of entertainment assets from Twenty-First Century Fox in 2019. Disney ended the fiscal second quarter with $14.3 billion in cash and total debt of $55.4 billion. It issued $6 billion of term debt during the fiscal second quarter to boost its liquidity to get through the crisis while its theme parks were closed. 

Keep in mind, Disney has carried more debt than cash on its balance sheet for a long time, so this shouldn't be alarming. Many top consumer goods companies do this because of the predictable nature of their annual revenue. Disney has more than 1 billion fans worldwide that management considers "true fans" of its entertainment properties, including Star Wars, Marvel, Pixar, and properties brought over from Fox, such as National Geographic. 

Ultimately, the closures of its theme parks forced Disney to hang on to every dollar, which meant temporarily halting its semi-annual dividend payment, which would have been paid in July. This preserved $1.6 billion in cash. 

During the fiscal second-quarter conference call, CFO Christine McCarthy mentioned it was a tough decision to halt the dividend, but she also left the door open for the dividend to be reinstated later this year. "We don't have a crystal ball that allows us to see into the future for how long this disruption is going to keep our businesses closed partially or fully," McCarthy said. "So we'll address the dividend again in the next six months." 

With all four of Walt Disney World's theme parks in the U.S. currently open, there's hope that Disney may be able to resume its dividend soon, but that will depend on the pace of recovery.

Good but not great

A great dividend stock is one that ideally has more cash than debt on its balance sheet, maintains a low payout ratio, and has a long record of increasing its dividend. Two dividend stocks that fit that description are Microsoft and Apple

We can't call Disney a great dividend stock when it just suspended its dividend, but it should remain a good investment with its future in streaming and the strength of its brands. The House of Mouse will eventually reinstate its dividend, but income investors have better options.