SPECIAL REPORT The Top 7 Stocks for 2024

Disney’s Comeback Tale: Is DIS Stock Poised for a Magical Rebound?

Advertisement

  • Disney (DIS) announced its first annual dividend payment in four years this past week.
  • The company’s shareholders continue to hope for a better backdrop heading into the company’s second century as a publicly-traded entity.
  • A year into Bob Iger’s return, signs of improvement are evident, bolstering investor confidence in the stock.
DIS stock - Disney’s Comeback Tale: Is DIS Stock Poised for a Magical Rebound?

Source: Shutterstock

While Disney (NYSE:DIS) consumers may perceive the company operating as usual, shareholders understand the challenges beneath the surface. There’s plenty to be concerned about from industry strikes to streaming hurdles. Indeed, given the drop we’ve seen in DIS stock from its 2021 peak, it’s clear many concerns are currently priced into this stock.

Accordingly, I’m among the bullish investors on Disney who believe this is a stock worth considering at these levels. There will always be volatility in any individual stock or the market as a whole. However, despite the turmoil, there’s optimism for Disney’s future growth.

Disney operates a robust model as the world’s largest entertainment company. Creative teams produce popular characters, leading to various assets like content, toys, and theme park rides. Disney consistently dominates the box office, owning major film studios like 20th Century and Pixar.

Additionally, the company’s theme park dominance is unparalleled globally. The unique experiences it offers through its expansive parks and exclusive Disney-owned attractions set it apart with minimal competition.

DIS Dividend is Back

Among the most notable catalysts for DIS stock is the company’s reinstating of its cash distributions. Recently, Disney announced a semi-annual dividend of $0.30 per share for the second half of the fiscal year ending in September. The dividend was confirmed in February, and the payout will be on Jan. 10, 2024, for shareholders as of Dec. 11, 2023.

Disney resumed semi-annual dividends at $0.30 per share, marking the first payout in four years. Though modest, with a yield just above 0.6%, it signifies a return to normalcy for the media giant after disruptions from the COVID-19 crisis.

Over the past four fiscal years, Disney’s landscape has transformed. Notably, Disney+ has emerged, contributing about a quarter of total revenue. Despite changes in linear networks and movies, overall top-line results are 28% higher than in fiscal 2019.

Disney’s stock and earnings have dipped since four years ago, with significant losses in Disney+, Hulu, and ESPN+. Despite cost-saving efforts, the return on dividends signals optimism, suggesting Disney aims to make its streaming business profitable by the new fiscal year. The small dividend marks a return to normalcy, making Disney more appealing to income-focused money managers and risk-averse individual investors.

The modest yield is not inconsequential. Indeed, Disney has never been a high-yielding investment. The return to this semi-annual dividend is reminiscent of when Disney stock held a more prominent position in portfolios. If Disney’s recovery continues, there’s ample potential for substantial dividend growth. This isn’t just a dividend; it’s a symbol and a catalyst of what could come.

Disney’s Magic is Back and Will Be Better

Disney shareholders might yearn for a more joyful centennial celebration as the company contends with challenges in advertising, declining linear TV, and streaming losses. Most investors know that DIS stock has trailed the broader market across various timeframes, significantly descending from its historical top-tier stock status.

However, despite the recent challenges for DIS shareholders, analysts express optimism. Rated as one of the top Dow Jones stocks, 19 out of 32 analysts label Disney as Strong Buy, indicating confidence in its potential. With an average target price of $103.71, the stock is anticipated to have approximately 13% upside in the coming year. 

Argus Research analyst Joseph Bonner highlights Disney’s competition with Netflix in long-form video streaming and emphasizes the company’s strategic steps toward profitability in its direct-to-consumer ventures under the leadership of CEO Bob Iger.

Smart money in the market shows growing interest in Disney stock. Despite a drop in hedge funds’ list of favorites in Q3, they boosted their net ownership of Disney by over 12%, acquiring 23 million shares during the period.

Important December Dates

Disney opted to skip a significant theatrical release this month, a strategic move after lackluster performances of recent releases. Initially set for December 8, Magazine Dreams was pulled in late October without an official explanation, possibly due to legal issues involving star Jonathan Majors.

Disney has reinstated its semiannual dividend on December 11, with shareholders set to receive the first payout in four years. Despite the modest $0.30 per share every six months, it signals a significant step toward normality as Disney’s revenue reaches record levels and Disney+ aims for profitability in the new fiscal year.

Lastly, the company is expanding its themed attractions overseas on December 20, with the recent debut of a Zootopia-themed area at Shanghai Disneyland featuring a new ride called Zootopia: Hot Pursuit. This move aims to attract new visitors and focuses on bolstering franchise appeal, particularly at its minority-owned Hong Kong and Shanghai parks.

DIS stock enthusiasts, like ValueAct Capital, are placing their confidence in Bob Iger. With a focus on cost-cutting measures, strategic layoffs, and the theme parks valued at $80/share, they anticipate a lucrative streaming strategy, including the $8.61 billion acquisition of Hulu, which will enable a comprehensive streaming package. 

Walt Disney Co.’s future rests on Bob Iger’s ongoing adjustments, making it a calculated bet on his leadership.

On the date of publication, Chris MacDonald has a LONG position in DIS. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.


Article printed from InvestorPlace Media, https://investorplace.com/2023/12/disneys-comeback-tale-is-dis-stock-poised-for-a-magical-rebound/.

©2024 InvestorPlace Media, LLC