Media and theme-park giant Walt Disney (DIS +1.38%) made some big headlines on Wednesday afternoon when it reported its fiscal first-quarter financial results. Not only were revenue and adjusted earnings per share both higher than analysts' average estimates for the two metrics, but the company said it's cutting 7,000 jobs and restructuring its business to reduce expenses and improve focus.
But perhaps the most important piece of information from the report for dividend investors was news that the company plans to reinstate a regular cash payout later this year. Here's what we know about Disney's potential upcoming dividend, including the reasons for its reinstatement, the timeline, and what to expect from the payout.
NYSE: DIS
Key Data Points
Why is Disney reinstating its dividend?
Disney's fiscal first-quarter results were solid. Revenue rose 8% year over year. But what's telling about the results is just how strong the growth was in Disney's segment theme-park business.
Its "Disney parks, experiences, and products" segment, which primarily includes sales from theme parks and consumer products, saw revenue surge 21% year over year to $8.7 billion. Even more, when you exclude consumer product sales from the segment, Disney's parks and experiences revenue rose 27% year over year.
Operating income for the overall segment increased 25% year over year to more than $3 billion. The lucrative segment, which took a hit from travel restrictions and people sheltering at home due to COVID-19, is back.
This recovery of the company's profitable theme-park business, which was punched in the gut by COVID-19, is one of the key reasons for Disney's decision to reinstate its dividend. But management's restructuring to enhance efficiency, along with a reduction to its workforce to create a leaner organization, is also key.
"Now that the pandemic's impacts to our business are largely behind us, we intend to ask the board to approve the reinstatement of a dividend by the end of the calendar year," said Disney CEO Bob Iger in the company's earnings call. "Our cost-cutting initiatives will make this possible."
When will the dividend start?
Assuming Disney's board approves Iger's request to increase the dividend -- and it probably will since Iger is the top individual shareholder of Disney -- the first payout likely won't be until early next calendar year. Iger said in the company's earnings call that the management team intends "to ask the board to approve the reinstatement of a dividend by the end of the calendar year." Based on the timing of the company's previous semi-annual dividends, and considering the wording used by Disney's Chief Financial Officer Christine McCarthy about expecting to "be on track to declare a modest dividend by the end of this calendar year," it's likely that the first payout will occur in January.
In pre-COVID-19 years, Disney would declare its second semi-annual dividend in late November or early December and pay it out in January. The following regular dividend was typically declared in June and paid out in July.
How big will the dividend be?
Investors shouldn't get their hopes up for a meaningful dividend. Indeed, management's commentary suggests it may initially be much smaller than the company's most recent semi-annual dividend payment, which amounted to a dividend yield of 1.5%, based on the stock price today.
"The amount will likely be a small fraction of our pre-COVID dividend with the intention to increase it over time as our earnings power grows," said McCarthy during the earnings call.
While a dividend payment will give the company less money to reinvest in its business, operating leverage demonstrated in Disney's theme parks recently shows that the company will likely be well-positioned to initiate this small dividend. While some income investors may be disappointed to hear that the dividend could be small at the beginning, management is wise to go about it in a measured way, with a plan to increase it over time as its earnings power grows. The last thing shareholders want is for the company to not have enough capital to reinvest in its growth opportunities.
