As arguably the most successful entertainment conglomerate of all time, Walt Disney Co (NYSE:DIS) has handsomely rewarded long-term investors willing to patiently watch the company work its magic.
Over the past five years alone, for example, Disney shareholders have enjoyed a staggering 221% return on their investment including dividends, trouncing the S&P 500's respectable 96% return over the same period:
But make no mistake: That doesn't mean Disney stock can't continue outperforming the market from here. Disney is able to create value for shareholders precisely because its business is set up - brilliantly I might add - for long-term success. Here are three ways the House of Mouse demonstrates that brilliance:
1. Investing for the future
First, note the majority of Disney's capital expenditures each year go to investing in its Parks and Resorts segment, be it building new parks, adding rides, or updating existing attractions.
Last fiscal year, Disney dedicated over 81% of its $3.311 billion capital expenditures budget to parks and resorts, including a slight year over year bump to $1.184 billion for domestic properties, and a 55% jump to $1.504 billion for international locations. The latter increase came from higher construction spending in advance of the 2016 opening of the nearly 1,000 acre Shanghai Disney Resort, which Disney CEO Bob Iger recently noted was nothing more than an "ambitious idea" 15 years ago. For perspective, Shanghai Disney Resort is expected to host around 25 million annual visitors, compared to the roughly 20 million visitors the company welcomed last year through the gates of the Magic Kingdom.
But in the meantime, Disney's existing Parks and Resorts still enjoyed record attendance last year, even as it increased daily admission prices at the Magic Kingdom for the 27th consecutive year. As a result, Parks and Resorts' operating profit increased an impressive 20% in fiscal 2014 to $2.66 billion, driven almost entirely by consumers' continued enthusiasm for Disney's timeless domestic parks.
In short, Disney knows all too well that by investing heavily in its parks today, it'll be able to reap the resulting financial rewards for decades.
Some of those storylines come from its namesake studio brands like Disneynature, DisneyToon Studios, and Walt Disney Animation Studios. And Walt Disney Animation, for its part, was responsible for bringing audiences massive hits like Big Hero 6 and Frozen, the latter of which ended its theatrical run as the highest-grossing animated film of all time, and now unsurprisingly has a sequel on the way.
Finally, when the curtain falls, Disney is adept at taking its intellectual property and letting the cash flow downstream to its other supplementary segments.
First, Disney regularly exploits connections between the big and small screens. Disney's ABC network, for example, typically takes advantage of crossover episodes coinciding with the release of each Marvel film to boost ratings for its Marvel's Agents of S.H.I.E.L.D. series. And on Disney's kid-centric channels, shows like Sophia the First often feature appearances of well-known Disney princesses. Others are spin-offs of classics, like this November's launch of The Lion Guard, or the recent decision to reboot Duck Tales in 2017.
Collectively, Disney's studio and media networks segments then translate to higher sales and profits at other downstream businesses. I already discussed the growth at parks and resorts above, for instance. But Disney's consumer goods segment also saw revenue and operating income climb 9% and 19%, respectively, last year. And on the heels of a successful launch of the new Disney Infinity game, which incorporates characters from all of the aforementioned franchises, interactive gaming sales and operating income rose 26%, helping the segment swing from an $87 million operating loss to income of $116 million over the same period.
All things considered, and given each of the three strengths above, I find myself in awe of the efficient entertainment giant Disney has become. Over the long-term, and as Disney's reach continues to grow around the world, I see no reason to believe the stock won't also continue to represent a superior option for long-term investors.