Walt Disney Suspends Dividend and Cuts History of Growth
Walt Disney suspended its dividend for the first half of 2020. It normally pays a semiannual dividend and has a long history of dividend growth. It’s even a coveted blue chip stock. So this move comes as a shock to many investors.
The coronavirus has disrupted many industries, and the House of Mouse isn’t exempt. Disney is a diversified media giant with products like Disney+ streaming, which has seen a sales bump. But other products, like its theme parks, have shut down completely. That’s a big loss of revenue.
To stay in a position of financial strength, management is making tough decisions. The recent dividend cut is hopefully temporary. For more insight, let’s take a closer look at the business. Then, after that, we’ll dive into past dividend trends.
Why Walt Disney Suspended Its Dividend in 2020
Walt Disney is a $188 billion business. The company is based out of Burbank, California, and it employs 223,000 people. Last year, Walt Disney pulled in about $70 billion in sales, which works out to $312,000 per employee.
The company reports four revenue segments:
- Media Networks
- Parks, Experiences and Products
- Studio Entertainment
- Direct-to-Consumer and International
The Parks, Experiences and Products segment is the largest. It brought in $26 billion last year, or close to 40% of Disney’s total revenue. Now, in the coronavirus market, this segment’s revenue is dropping, and there are still some heavy fixed costs. This helps shed some light on why the board of directors has suspended Disney’s dividend.
Even with the recent downturn, Walt Disney has an investment-grade credit rating of A-. This allows the company to issue cheap debt to make ends meet. In the second quarter, Disney issued close to $7 billion in debt.
It’s a challenging time, but I have no doubt the company will overcome its obstacles. We’re already starting to see businesses reopen. And hopefully by this time next year, it’ll be back to business as normal. Then, if history is a guide, the dividend should return and follow in its past footsteps.
Walt Disney Dividend History
The company paid investors $0.35 per share a decade ago. Over the last 10 years, the dividend has climbed to $1.76. That’s a 403% increase, and you can see the annual changes below…
The compound annual growth rate is 17.5% over 10 years… but the recent Walt Disney dividend cut put an end to the growth. This isn’t a great sign, but the board of directors said they would reevaluate paying the next six-month dividend.
For more insight into past dividend trends, let’s take a look at Disney’s dividend yield history. The dividend yield now comes in at 0%, and the 10-year average is 1.29%. The chart below shows the dividend yield over the last 10 years…
If and when the dividend returns, it might come back around this range. The board of directors has a good history of rewarding shareholders.
We’re living in a challenging economic environment. Many businesses are acting to conserve capital. And Walt Disney’s dividend cut is prudent. This should help the company to better weather the impact of the coronavirus.
For income investors, it’s tough in the short term. But for long-term investors, Disney might be one of the better investment opportunities around. It commands valuable brands in multiple growing industries.
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