A $25,000 investment in Disney (DIS -2.36%) stock would pay about $379 in annual dividend income. This is based on Disney's current $1.50 annualized dividend ($0.75 per share, paid twice per year) and on buying 253 shares at a price of $98.80 per share at the time of writing.
The stock has been stuck in a trading range for the last three years and is still trading 51% below its all-time high over five years ago. Weaker margins and heavy spending to support streaming content kept the share price in check.
However, the company has been steadily growing its revenue recently. The stock trades at a modest 14 times forward earnings estimates. If Disney's upcoming earnings report on Aug. 5 shows improving margins and growth, investors may finally see a lift in the share price on top of a 1.5% yield.
Image source: The Motley Fool.
Disney's flywheel is working
Disney has steadily increased its dividend over the past few years. The pandemic disruptions in 2020 led to a suspension of dividend payments until they were reinstated in 2023 at $0.30 per share,paid semiannually. Since then, the company has raised it multiple times, culminating in the current $0.75 semi-annual payment.
The growing dividend reflects improving profitability in the business. Since fiscal second-quarter 2023 (ended in March), trailing 12-month net income nearly tripled to $12.3 billion, representing a net profit margin of 12.7%.
New CEO Josh D'Amaro has been focused on building direct-to-consumer connections with customers and driving growth in experiences (parks, resorts, cruises, and consumer products). This is the Disney flywheel in action -- popular films and characters ultimately drive interest in Disney's theme parks, products, and streaming services.
This flywheel strategy has been working. Total revenue across the business grew 7% year over year last quarter to $25.2 billion, with adjusted earnings per share up 8% to $1.57. This was led by a 10% increase in entertainment (streaming, studios, etc.) revenue, followed by experiences (+7%), and sports (+2%), including ESPN.
NYSE: DIS
Key Data Points
What matters on Aug. 5
When Disney reports fiscal third-quarter earnings on Aug. 5, investors will want to make sure it meets revenue and earnings expectations. The consensus analyst estimate calls for adjusted revenue of $25.4 billion, up 7.5% year over year, and earnings of $1.85, up 15%.
Disney has been facing pressure on domestic park attendance, so worsening consumer spending could cause it to miss estimates. That said, Disney is coming off a strong quarter in its experiences business and also saw accelerating revenue growth in streaming. This momentum could carry over to fiscal Q3, as implied by analysts' expectations.
Over the long term, growth in park attendance and cruise passengers, which grew 2% globally last quarter, and margin improvement in streaming will be key drivers of earnings and dividend growth. These are the two areas to watch closely when Disney reports earnings.
