Stock Analysis Pollie-style – The Walt Disney Company – 2018.
Last weekend I was writing a post for my blog, and one of my kids asked me what I was doing. I told her I was writing about shares, ownership, dividend, stocks, etc. I already talked with her about what a stock is, (for this post, see my Teaching my Kids – series, part 5: What is a Stock?) so she didn’t look funny/puzzled, she just wanted to know which company it was about.
I told her I was doing some research on an US stock that she doesn’t know because it hasn’t shops or buildings here in The Netherlands (If you by now are curious of which stock I wrote a post, just click and learn about my actions this year on Omega Healthcare Investors).
Then I asked her if she knows a company that she likes and thinks that will still exists in 20 year or more. She named a couple of famous Dutch companies and then I asked her if she knew some international companies or companies from the USA. She turned away to think, and saw the DVD’s lying besides the TV and said: “What about Disney?” And I thought, yes what about Disney?
So this analysis is on The Walt Disney Company (DIS).
From Wikipedia: The Walt Disney Company, commonly known as Disney, is an American diversified multinational mass media and entertainment company. Disney was founded on October 16, 1923 – by brothers Walt Disney and Roy O. Disney. The company is best known for the products of its film studio, Walt Disney Studios, which is today one of the largest and best-known studios in American cinema. Disney’s other three main divisions are Walt Disney Parks, Experiences and Consumer Products, Disney Media Networks, and Disney Direct-to-Consumer and International. Disney also owns and operates the ABC broadcast television network; cable television networks such as Disney Channel, ESPN, A+E Networks, and Freeform; publishing, merchandising, music, and theater divisions; and owns and licenses 14 theme parks around the world.
Can I explain this to a 10-year old? What Does This Company Do?
This company makes animated movies, such as Frozen, owns TV-stations, such as the Disney channel and it also owns theme parks around the world, such as Disneyland Paris (I live in Europe, so this is the closest to our house).
Dividend Aristocrat:Disney has raised its dividend for 8 consecutive years. It is therefore a Dividend Challenger on the CCC-list from David Fish! (No.442). Because it hasn’t raised its dividend for more than 25 years, it is a Fail!
Dividend Yield > 2.5%:The dividend Yield of Disney is 1.67%. This is above the industry average of 1.1%, and above its 5 years average (1.3%). The Yield is below the requirements of the Pollie-Code, and therefore it is a Fail.
Dividend payout <70%:The dividend payout is roughly 28%. This is below the maximum ratio, and that is what a DGI wants. Disney passes on this point.
DGR 1 year > 0%: The dividend growth rate for 1, 3, 5 and 10 years are 4.7, 22.0, 21.1 and 17.7. With a 3-years average around 22% this looks very good! And it is above the requirements of the Pollie-code, so it is a Pass.
P/E-ratio < 15:This is an easy metric that is well documented. It can be used as a quick metric to identify stocks that may potentially be undervalued. I use this to identify stocks that may be discounted compared to the overall stock market. Disney has a current P/E ratio of 14.2. Theindustry average is 21.8. The P/E ratio is below the industry average and also way below its own 5-years average (20.2). The P/E-ratio is below the requirement of the Pollie-Code. So this is a Pass.
EPS > 0: The EPS is 5.99 Therefore Disney passed the sixth Pollie-Code
ROE > 10%:Return on equity measures a corporation’s profitability by revealing how much profit a company generates with the money shareholders have invested.The current ROE is 25.60%. This is another Pass.
Market Cap. > 100M:No problem at this point. The Market cap. Is more than $ 154.186 Mil. You guested it already: Another pass.
Chowder Rule > 12: Named after “Seeking Alpha” member Chowder. This is a method of identifying candidates for purchase based on a combination of yield and (5-year) dividend growth rate. When the sum of these elements is above 12%, the company presents an attractive entry point (8% for utilities). When the figure is above 8%, an existing holding is still considered worthy of being retained. The current Chowder rule is 22.7. So it is another Pass for Disney.
Stock price 52wk high-25%:The 52 wk. high and low are: 114.3 and 95.43. This means that Disney will be in my buying zone when the stock price is below 109.58 ((114.3-95.43)*0.75 + 95.43). At this moment Disney is trading for $100.16. Therefore it is a pass on the Pollie-Code.
Beta:I think it’s important to have low Beta stocks in my portfolio. This helps to have a stable income all the time, even when the market has a rapid decline. The Beta for Disney is 1.30.
Debt/Equity ratio: The Debt/Equity ratio of Disney is around 0.46. This is the kind of ratios I like to see for a company. 🙂
When I look at my analysis, Disney passed 8 out of 10 metrics of the Pollie-code!! Disney isn’t a Dividend Aristocrat yet and the Dividend Yield isn’t high enough.
In my opinion is Disney one of the most iconic and dominant entertainment companies in the world.Due to its strong portfolio of hard-to-replicate assets, it has a wide moat. With demand for content continuing to rise over the long run together with the company’s ability to monetize its asset, this is a company set to become a Dividend Aristocrat in my opinion.
Furthermore it has plans to launch its own streaming services and tries to acquire Twenty-First Century Fox. I think that these actions will drive a profitable long-term growth.
Okay the dividend yield is on the low side, but with a payout-ratio of fewer than 30%, there is plenty room to grow 😉
All this information together I certainly will put The Walt Disney Company on my watch list for my Vrijheid Fonds and probably will take action in the near future.
What are you – the readers, thoughts on Disney? Is it a buy, do you own it?
Please comment on my analysis and thanks for stopping by!
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