Disney (DIS) Continues Suspension of Cash Dividend

The Walt Disney Company (DIS) announced on Nov. 12, 2020 that it is continuing the suspension of its semi-annual cash dividend. Investors did not receive a dividend in July 2020 and will not get a cash payout in January 2021 either. The company's board of directors attributed its decision to "the ongoing impact of COVID-19 and the Company's decision to prioritize investment in its direct-to-consumer initiatives."

The last semi-annual dividend paid by Disney was $0.88 per common share, payable on Jan. 16, 2020, to shareholders of record as of the close of business on Dec. 16, 2019. 

Significance for Investors

If the previous annual cash dividend of $1.76 (two times $0.88) per common share had been maintained, the annualized dividend yield on Disney's common stock would have been 1.22% as of the market close on Nov. 16, 2020, given a share price of $144.67 at the close. By comparison, the dividend yield on the entire S&P 500 Index was 1.70% as of Nov. 13, 2020, the latest available weekly calculation.

Disney already was less than attractive to income-oriented investors, given its below-average yield, as noted above. Needless to say, the continued suspension of the dividend has reduced its appeal to such investors even more.

On the other hand, the company has delivered handsome capital appreciation during the past decade, rising by more than 400% from about $28 per share. Much of this stock price appreciation has been fueled by successful acquisitions. Indeed, part of the rationale for suspending the dividend, as noted above in the directors' statement, is to deploy cash in yet more investments.

Expanding Media Empire

Disney remains best-known among the general public for movies and television programs, both animated and live-action, aimed at younger children. However its media empire extends far beyond that niche, including, among many others, the National Geographic Channel, ESPN, Pixar, Marvel Studios, and Lucasfilm. In the words of one report, "Disney is now one of the largest media companies in the world, and very likely the most influential."

High Acquisition and Development Costs

Disney finalized its purchase of 21st Century Fox in 2019, at a final cost of $71 billion. Acquiring the "Star Wars" franchise from Lucasfilm cost about $4 billion.

The leading direct-to-consumer initiative for the company right now is the new Disney+ platform. Costing more than $3 billion in development and content costs (not including acquisitions such as Fox and Lucasfilm), Disney+ is designed to compete in the video streaming market with major players such as Netflix, Inc. (NFLX) and Amazon.com, Inc. (AMZN). Meanwhile, Disney also owns 100% of streaming service Hulu.

The Bottom Line

Given that Disney has over 1.8 billion shares outstanding, each semi-annual dividend payment would have consumed nearly $1.6 billion of cash, at $0.88 per share. Meanwhile, Disney's long term debt has soared from $38.1 billion to $52.9 billion from Sept. 28, 2019, to Oct. 3, 2020. Servicing this debt load, plus continuing to invest in content and technology, means that Disney probably will prioritize these uses of cash ahead of restoring the dividend for some time into the future.