Dividend stocks outperform non-dividend-paying stocks over the long run. It happens in good markets and bad, and the benefit of dividends can be quite striking -- dividend payments have made up about 40% of the market's average annual return from 1936 to the present day.

But few of us can invest in every single dividend-paying stock on the market, and even if we could, we're likely to find better gains by being selective. Today, two of America's (and the world's) most powerful media companies will square off in a head-to-head battle to determine which offers a better dividend for your portfolio.

Tale of the tape
Founded in 1923, The Walt Disney Company (NYSE:DIS) is the world's largest media conglomerate, with assets in film, television, publishing, and theme parks. The company has been a component of the Dow Jones Industrial Average since 1991, and is currently the only media representative on the landmark index. Headquartered in Burbank, California, Disney is perhaps best known for the Walt Disney Studios, which remains one of the world's largest film studios. The company also operates ABC Television Group, which includes the ABC television network itself and a portfolio of cable networks such as ABC Family, the Disney Channel, A+E Networks, and ESPN. Disney also owns and operates five world-class vacation destinations, with 11 theme parks and 44 resorts, across North America, Europe, and Asia.

Established in 1985 with the merger of Time Inc. and Warner Communications, Time Warner Inc (NYSE:TWX.DL) is a global leader in media and entertainment, with a similar operations profile as Disney spanning television networks, filmed entertainment productions, and publishing. Headquartered in New York City, the company operates pay-TV channels such as HBO and Cinemax, and it also owns a portfolio of cable TV networks including CNN, TBS, and TNT through its subsidiary Turner Broadcasting. Subsidiary Time is the publisher of major consumer titles such as People, Time, and Fortune in the magazine space. In the last decade, Time Warner spun off former acquirer AOL, Time Warner Cable, and Warner Music Group to increase shareholder value.



Time Warner

Market cap

$140.3 billion

$59.4 billion

P/E ratio



Trailing 12-month profit margin



TTM free cash flow margin*



Five-year total return 



Source: Morningstar and YCharts.
*Free cash flow margin is free cash flow divided by revenue for the trailing 12 months.

Round one: endurance (dividend-paying streak)
According to Dividata, Disney began paying quarterly shareholder distributions in 1982, but it switched to annual dividend payments in 2000, while Time Warner only began paying quarterly dividends in 2005. Disney's 32-year dividend-paying streak earns it the endurance crown with ease.

Winner: Disney, 1-0.

Round two: stability (dividend-raising streak)
Disney kept its annual dividend payouts firm through the global financial crisis of 2008, which means that the House of Mouse has only been increasing its dividend since 2010. That gives Time Warner the easy win, as it's been increasing its quarterly shareholder distributions every year since 2005.

Winner: Time Warner, 1-1.

Round three: power (dividend yield)
Some dividends are enticing, but others are merely tokens that barely affect an investor's decision. Have our two companies sustained strong yields over time? Let's take a look:

DIS Dividend Yield (TTM) Chart

DIS Dividend Yield (TTM) data by YCharts

Winner: Time Warner, 2-1.

Round four: strength (recent dividend growth)
A stock's yield can stay high without much effort if its share price doesn't budge, so let's look at the growth in payouts over the past five years.

DIS Dividend Chart

DIS Dividend data by YCharts

Winner: Disney, 2-2.

Round five: flexibility (free cash flow payout ratio)
A company that pays out too much of its free cash flow in dividends could be at risk of a cutback, particularly if business weakens. We want to see sustainable payouts, so lower is better:

DIS Cash Dividend Payout Ratio (TTM) Chart

DIS Cash Dividend Payout Ratio (TTM) data by YCharts

Winner: Disney, 3-2.

Bonus round: opportunities and threats
Disney may have won the best-of-five on the basis of its history, but investors should never base their decisions on past performance alone. Tomorrow might bring a far different business environment, so it's important to also examine each company's potential, whether it happens to be nearly boundless or constrained too tightly for growth.

Disney opportunities

Time Warner opportunities

  • Time Warner's CGI extravaganza sequel 300: Rise of an Empire is tracking for a huge international take.
  • Time Warner and CBS's The Big Bang Theory was recently renewed through a tenth season.
  • Subsidiary HBO's True Detective hit a ratings high with 11 million viewers.
  • HBO's comedy series Silicon Valley is slated to make its debut this July, three months after the hotly anticipated return of Game of Thrones.

Disney threats

Time Warner threats

One dividend to rule them all
In this writer's humble opinion, it seems that Disney has a better shot at long-term outperformance, thanks to its ubiquitous brand recognition and a more diversified business model. The company is likely to wind up creating more film franchises with the launch of Marvel's new X-Men and Guardians of the Galaxy comics series. Orlando's recent airport expansion project should also help lure a large number of new visitors to the legendary Disney World theme park. The company's combined properties seem more defensible than Time Warner's, which is the key differentiator in long-term investing for this type of industry. You might disagree, and if so, you're encouraged to share your viewpoint in the comments below. No dividend is completely perfect, but some are bound to produce better results than others. Keep your eyes open -- you never know where you might find the next great dividend stock!

Alex Planes has no position in any stocks mentioned. The Motley Fool recommends DreamWorks Animation and Walt Disney and owns shares of Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.