How Dividends Change the Game for Disney

The House of Mouse is a massive cash machine for investors. The best part? You ain't seen nothin' yet.

Anders Bylund
Anders Bylund
Feb 6, 2013 at 2:00PM

The wealth-building power of compound interest will never cease to amaze me. It's a story of patience and attention to detail, where small differences in the short term add up to massive divergence over decades. In the end, the biggest winners don't always deliver the fattest share-price returns.

Take entertainment giant Walt Disney (NYSE:DIS), for example. The longtime Dow Jones Industrial Average (DJINDICES:^DJI) component has absolutely crushed its Dow peers over the last decade, any way you slice it. But if you're not reinvesting your Disney dividends in more stock, you're leaving a significant pile of money on the table.

DIS Chart

DIS data by YCharts.

The dividend-based bonus return may not nook like much in isolation. Plain old share-price gains should be enough to satisfy any investor here, right?

But then you're not seeing the bigger picture. Disney has a long history of making game-changing acquisitions, followed by large payout increases -- and rising share prices. You can almost set a clock by these tightly related trends.

Look at this chart, keeping in mind that Disney bought Pixar in 2006 and Marvel in 2009.

DIS Total Return Price Chart

DIS Total Return Price data by YCharts.

Would you bet against the Lucasfilm deal powering another big dividend boost and share price jump as the Star Wars portfolio takes shape? I sure wouldn't. It's in Disney's DNA to share its deal-powered wealth with investors.