Disney (NYSE:DIS) and Time Warner (NYSE:TWX) are two of the largest media companies in the world. Both stocks have outperformed the S&P 500's 11% gain over the past year -- Disney has risen 31%, while Time Warner has climbed 28%.

Source: Author.

Since both companies regularly raise their dividends, Disney and Time Warner can be considered "dividend growth" stocks. Granted, Disney and Time Warner's dividends pale in comparison to those of some high-yield stocks, but both stocks offer a solid mix of dividend and earnings growth that investors shouldn't overlook.

Dividend growth potential
Disney has an annual yield of 1.1%, compared to Time Warner's yield of 1.6%. Disney pays its dividend once per year, while Time Warner pays its dividend every quarter.

Over the past 12 months, Disney paid out 22.3% of its free cash flow as dividends, compared to Time Warner's 34.6%. While this indicates that Time Warner's dividend is more "generous", Disney's lower payout ratio also gives it more room to raise its dividend.

Over the past three years, Disney boosted its year-end dividend by an average of 25%. During that period, Time Warner only raised its dividend by an average of 10% annually. Over time, Disney's bigger dividend hikes could help its yield and payout ratio surpass Time Warner's.

Earnings growth potential
Dividend growth must be supported by robust earnings growth. In 2014, Disney's earnings per share rose 26% year-over-year. Its Parks & Resorts and Consumer Products businesses both reported double-digit bottom line growth. Operating income at its Studio Entertainment unit, supported by Frozen and Marvel films, more than doubled. Looking ahead, Wall Street analysts expect Disney's earnings to grow 13% this year.

Avengers: Age of Ultron. Source: Marvel.

Last year, Time Warner's earnings per share rose 18% year over year, thanks to the growth of its ad-supported, news, and premium cable networks. CNN ranked first among all cable news networks in total viewers, and HBO attracted plenty of viewers with Game of Thrones and True Detective. Warner Bros. has also fared well in theaters recently with American Sniper, which grossed $536 million worldwide on a budget of $59 million. Analysts expect Time Warner's earnings to rise 12% annually this year.

Plans for the future
Disney and Time Warner both own strong franchises which fuel comparable earnings growth, but Disney's long-term ambitions are much clearer. Its films for the Marvel Cinematic Universe have been planned through 2019, its Star Wars and Pixar films have been scheduled through 2017, and a new Frozen film is on the way. In the first half of 2016, its Shanghai Disney Resort will open, which will boost theme park revenue and possibly help Disney expand further across Asia.

CEO Bob Iger has also been expanding Disney's top franchises across all business units in a timely manner. The popularity of Marvel and Frozen, for example, quickly led to tie-in TV shows on ABC, new theme park attractions, licensing deals, and fresh video games, which helped its Interactive division return to profitability in 2014.

Disney's virtual toy box, Infinity. Source: Disney.

Time Warner's long-term plans are more nebulous. With The Hobbit trilogy over, Warner Bros. lacks an annual franchise of blockbusters to stabilize studio revenues. Batman v. Superman: Dawn of Justice will arrive in 2016, but it's unclear if Time Warner can replicate the success of Disney's Marvel movies. J.K. Rowling's Fantastic Beasts trilogy will also arrive in 2016, but Harry Potter-level box office numbers aren't guaranteed. On TV, Game of Thrones will likely end in two or three years, which will leave HBO scrambling for another hit series. Meanwhile, none of Time Warner's franchises blur the lines between TV and film as cohesively as Disney's.

The winner: Disney
Both Time Warner and Disney are solid media stocks which have positive catalysts on the horizon. But for an ideal mix of dividend and earnings growth, I prefer Disney, which has much clearer plans for its future. As for Time Warner, I'd like to see more progress in securing long-term franchises -- spanning both the TV and film universes -- that won't fade away after a few years.


This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.