Minnie and Mickey Mouse playing with one of Disneyland's millions of annual visitors

Despite their age, Minnie and Mickey are as popular today as they've ever been. Image source: Disney.

Walt Disney (DIS -1.08%) stock has let me down recently. Nevertheless, I'd buy more -- right now -- if the company weren't already responsible for 28% of our family portfolio.

Actually, check that. I may still buy more, if I find good reasons to sell other holdings and raise funds to add to our position in Disney stock and options.

Improving business, declining stock = rich opportunity
Why am I so bullish? Have a look at the chart:

DIS Chart

DIS data by YCharts.

Revenue, profit, and cash from operations have all improved nicely even as Disney stock has underperformed the market by about 3 percentage points since I made a rather substantial investment on January 2017 call options known as Long-Term Equity Anticipation Securities (LEAPS). Here's what I said about that bet in September:

To invest in LEAPs, I also need better-than-average odds of catalysts materializing before expiration. In this case, we have a potential record setter in Star Wars: The Force Awakens in December, followed by Captain America: Civil War in May of next year. Disney films could be responsible for $4 billion in global box-office receipts in fiscal 2016. Mix in the stock action, and I suspect there's a good chance Disney gets to $126 a share sometime during the next 12 months, the price at which my bet becomes a double. The stock already topped $121 in early August ...

My opinion hasn't changed, even as the losses have piled up. Here are my three reasons for holding fast:

  1. Franchise firepower boosts margins. Take a look at the history of Disney since the 2009 Marvel acquisition and you'll see huge improvement in two key areas. Specifically, operating margin at the Consumer Goods & Interactive and Studio Entertainment divisions have multiplied more than 3.5 times and 10 times, respectively, since fiscal 2009. That's what you get when new properties bring in new fans.
  2. Improving cash flow and a history of dividend increases. Cash from operations has more than doubled over the same period -- from $5.32 billion in fiscal 2009 to $11.42 billion over the trailing 12 months. Better still, Disney has managed to consistently raise its annual dividend payment while making bigger investments in its parks and expanding its franchise ambitions. Those who held shares last year were paid $1.37 per share for the privilege, a 19% increase over Disney's 2014 payout and nearly four times what the House of Mouse paid investors seven years ago.
  3. Parks has barely begun to enjoy the impact of Disney's newer properties. Both Walt Disney World and Disneyland resorts are due to get Star Wars-themed attractions in the coming years. Neither has much to speak of in terms of Marvel-themed attractions. And yet the segment continues to be one of Disney's best and most consistent earners, as well as the company's second-largest source of operating income. I wouldn't be surprised to see the division challenge cable for the top spot within five years, especially if operating margin continues to expand as it has. (From 13.29% in fiscal 2009 to 19.4% over the trailing 12 months.)