At the onset of the pandemic, both Disney (DIS -0.16%) and Macy's (M 1.80%) were forced to close their doors to customers. Disney had to close its theme parks, Macy's has to shut its stores are rely on online sales. There was plenty of uncertainty to go around for both companies. No one knew exactly how long the pandemic would last and if or when these businesses would be allowed to open their doors to guests again.
As a result, Disney and Macy's both took the drastic, but reasonable, step of putting their dividend payments on pause. For most companies, that was the lowest-hanging fruit available to conserve cash while waiting out the effects of the pandemic. It's been over 15 months since the initial lockdowns across the U.S. Since the last couple of months, states have been easing business restrictions, and neither Macy's nor Disney is on survival mode. So let's consider which company is closer to restarting its dividend payments.
When asked about the company's dividend in its most recent conference call, this is what CEO Jeff Gennette said: "What I would say in terms of dividends is that we're committed to getting back to reissuing dividends at the appropriate time. Yet, before we do that, we're really targeting our ability to achieve a higher level and a sustainable level of sales, margins, and cash flow."
Macy's prospects are improving. Indeed, in the first quarter, the company beat expectations and raised guidance for the rest of 2021. Still, Gennette implies that Macy's is not yet ready to restart its dividend -- certainly a prudent decision, especially if you consider the extra debt on the balance sheet Macy's is carrying. Indeed, as of May 1, Macy's has $4.5 billion in long-term debt and only $1.8 billion cash.
That debt is requiring an estimated $320 million in interest payments to be paid in 2021.
After closing all of its theme parks to visitors at the onset of the pandemic, Disney's parks are all finally open. The theme park segment experienced a $6.9 billion year-over-year decline in operating income. With all its parks now open, albeit at reduced capacity, the hope is that the parks will return to generating billions in cash flow for The House of Mouse.
Still, there was no mention of restarting its dividend in the company's most recent conference call. The focus is on getting the company back to full strength and investing in expanding its streaming services (Disney+, Hulu, ESPN+). And perhaps rightfully so. In the six months that ended April 3, Disney generated a negative free cash flow of $63 million.
However, looking at its balance sheet, Disney has $15.9 billion in cash, which is more than three times the highest level of cash it has carried on its balance sheet over the last decade. Admittedly, it has $50.9 billion in debt on its balance sheet, which is also at record levels as it tapped low-cost debt at the onset of the pandemic.
Overall, it's clear that Disney and Macy's are still feeling the negative effects of the pandemic. Their balance sheets are bloated from the extra debt, and profits have not yet returned to pre-pandemic levels. However, if you had to say which company is closer to restarting the dividend payment, it would have to be Disney. It has plenty of cash on its balance sheet, and the money it borrowed during the pandemic came at meager interest rates.