Shares of Walt Disney (DIS 0.68%) soared on Thursday as the company's transformation plans started taking hold. Shares surged 11% on the day after the company's quarterly report, as analysts and investors applauded Disney's strong earnings growth, upbeat guidance, and the announcement of a fall 2025 launch of ESPN's long-awaited flagship streaming service (not to be confused with ESPN+).
But with so much good news in the company's earnings report on Wednesday afternoon, one of the most exciting announcements may be getting lost: the company announced a whopping 50% increase to its dividend -- a move that signals Disney's confidence in its transformation into, as management predicts, an "earnings compounder."
Let's dive into Disney's dividend announcement and why the company is confident it can make such a bold move.
NYSE: DIS
Key Data Points
The raw numbers behind Disney's dividend increase
On Wednesday, Disney declared a semi-annual dividend of $0.45, payable on July 25. The amount is a whopping 50% higher than the payment it made to shareholders earlier this year.
The media and entertainment specialist is trying to regain confidence from dividend investors with its most recent increase. Disney put its dividend payments on hold in 2020 as COVID-19 led to lower theme park sales and new streaming service launches proved costly. In 2023, the company announced it was reinstating its semi-annual dividend, with its first payment going to shareholders in January of this year.
The company's new semi-annual dividend puts Disney's total annualized payments at $0.90, assuming the company's board doesn't increase the dividend again before the next semi-annual dividend is declared.
Disney stock's current share price gives shares a dividend yield of about 0.8%.
Improving financials
This dividend increase is backed by management's confidence in the company's improving financials. Disney's adjusted earnings per share in its first quarter of fiscal 2024 -- the three months ended Dec. 30 -- were $1.22, up from $0.99 in the year-ago quarter. Further, management said it expects full-year fiscal 2024 earnings per share to increase by "at least 20% versus 2023, to approximately $4.60."
This marks a "new era" for the company, declared Disney CEO Bob Iger in the company's earnings call with analysts. Explaining what this will look like in financial terms, Disney's new chief financial officer, Hugh Johnston, explained during the call that he thinks the company is now on a path "to become a strong cash generator and earnings compounder starting in fiscal 2024."
With earnings and free cash flow expected to continue growing, Iger believes there's a significant opportunity for the company to increase its shareholder returns over time. And with a 50% increase to its semi-annual dividend, Disney is putting its money where its mouth is. Even more, Disney didn't stop with its dividend. Management said its board also authorized $3 billion for share repurchases during fiscal 2024. That amount would be about 1.5% of Disney's current market cap. This will be the first time the company has repurchased its shares since 2018. Such a substantial share repurchase program highlights management's improving financials and shows that management has confidence in its stock's long-term performance potential.
