If Mickey Mouse's pockets have some extra jingle next month, it's probably because Disney (NYSE:DIS) is giving investors a little more pocket change after it announced that it would be hiking its annual dividend by 17%.
At $0.24 a share, the new payout isn't going to find our Income Investor readers storming the castle. The stock will still be yielding less than 1%, and now that the Fed has hiked the federal funds rate four times this year, it's not as if the payout will rival high-yielding money market funds.
In fact, because Disney's shares have appreciated by just over 20% over the past year, it will actually have a lower yield now than it did a year ago.
But that's the point, isn't it? You're not buying a stock with a sub-1% yield to strike it rich from your dividend checks. It's a welcome bonus. It's a pat on the back for believing in the company. But naturally you would rather have a stock appreciate by 20% and dole out next to nothing than pay out a meaty 5% dividend and have its shares slide by 20%.
Total return is the name of the game. Yet in Disney's case in particular, the dividend hike seems to provide a comforting nod of continued improvement. After scoring record cash flow in fiscal 2004, the company has been comfortable projecting double-digit profit growth for the next few years.
Could Disney afford to open up its purse strings a little wider? Of course. It earned $1.12 a share last year. Yet earmarking the money coming in to pay down its debt, repurchase shares, and invest in its future will ultimately prove more rewarding than two-dozen pennies in your pocket.
If you need meatier payouts, then consider some winning picks of our Income Investor newsletter like Sara Lee (NYSE:SLE), H.J. Heinz (NYSE:HNZ), Pitney Bowes (NYSE:PBI), and ServiceMaster (NYSE:SVM). They all sport high yields and have also appreciated since being singled out in the monthly research publication.
That's not Disney. Mickey loves his Minnie dividend and that's just fine.
Should Disney have hiked its dividend by a larger amount? What should Disney do with its money? Who will replace CEO Michael Eisner? All this and more -- in the Disney discussion board. Only on Fool.com.
Longtime Fool contributor Rick Munarriz has been to all six of Disney's domestic theme parks this year, and even though he has owned shares of Disney since the 1980s, he has never counted on the dividend as a get-rich-quick scheme. He is a member of the Rule Breakers analytical team, seeking out tomorrow's great growth stocks today.
