Screen Shot

The stars of Disney's Frozen. Photo: Disney

For most of us, when we think of Disney (NYSE:DIS), heartwarming images of Mickey Mouse, Aladdin, and Elsa from Frozen come to mind. But the average investor also knows the company is an absolute powerhouse when it comes to turning its wealth of content into solid gains for shareholders.

Since the Great Recession, Disney shares have returned an astounding 520% for investors -- more than doubling the return of the market as a whole. One key part to that outperformance has been the company's dividend.

But knowing the stock has done well in the past is only half the battle. Today's investors want insight into what the company could do in the days ahead. To find out about the company, and its dividend, read below.

The secret to a dividend's health
Many investors can easily be sucked in by a high yield, meaning they might quickly lose interest in Disney's 0.90% payout. But that alone doesn't tell you much about the long-term sustainability of a dividend. For that, we must look to free cash flow, or FCF, which is the amount of money a company brings in during a year, minus its capital expenditures.

In essence, dividends are paid from FCF, which makes this metric so important. Since 2009, here's what Disney's FCF and dividend situation has looked like.

The most important takeaway from this chart is that Disney's dividend is quite safe. Only 24% of the company's FCF is being used for the payout. That leaves enormous room for growth -- if the economy hits another serious rough patch, Disney could continue paying out its dividend without skipping a beat.

You might notice slight dips in Disney's FCF in 2011 and 2014. Normally, this might be reason for worry. However, the cause here isn't a drop in business, but rather heavy spending on capital expenditures. In 2011, the company spent billions to purchase a cruise ship, and over the past year it has been investing heavily in Shanghai Disney.

What about the business itself?
Disney is such an enormous company that it's perhaps best to break it down into its parts when evaluating performance. When the House of Mouse reports revenue, five distinct divisions are broken out:

  • Media: This includes the ABC network, as well as several cable properties including ESPN and the Disney Channel.
  • Parks and resorts: Disneyland, Disney World, etc. If it's a Disney theme park, it's included here.
  • Studio: This includes any movies the company releases under the Disney, Pixar, Lucasfilm or Marvel banners.
  • Consumer: Ever bought a Disney-branded toy for your child, grandchild, niece, or nephew? If so, it falls under this category.
  • Interactive media: Though a much smaller part of the Disney empire than the other branches, any video games that the company puts out fall under this banner.

When we look at how each division has performed since 2009, we can see that the biggest pieces continue to bring in increasing amounts of revenue.

It's understandable that the studio division will have its ups and downs, as not every movie can be the next Frozen. But where it really counts -- in media and theme parks -- the company has continued to perform very well.

There's no indication that this should abate anytime soon. The one issue that investors should keep their eyes on is how content viewing (read: cable and network television) evolves going forward.

As it stands, Disney can extract fairly high fees from cable providers that want to include ESPN in their package. As any sports fan knows, not having the network can be a deciding factor when it comes to cutting the cord.

While a planned merger between Comcast (NASDAQ:CMCSA) and Time Warner (NYSE:TWC) could cut down revenue, as the combined entity would control one-third of the pay-TV market and have greater bargaining power, I don't think that would be a death blow for Disney.

In the end, with the stock trading for an expensive but relatively fair -- as compared to the rest of the market -- 22 times earnings, it's probably worth buying a small starter position if you are interested in the Disney story. You can then add to the position as you get more familiar with the entertainment giant.

Brian Stoffel owns shares of Apple, Google (A shares), and Google (C shares). The Motley Fool recommends Apple, Google (A shares), Google (C shares), Netflix, and Walt Disney. The Motley Fool owns shares of Apple, Google (A shares), Google (C shares), Netflix, and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.