Disney Raises Dividend - Analyst Blog

The Walt Disney Company (DIS), a diversified entertainment company, has announced a dividend increase, a plan to utilize its free cash to enhance shareholder return, thereby boosting investor confidence in the stock.

The Burbank, California based company, Disney, raised its current annual dividend by 14.3%. The company had last increased its dividend by 12.9%. During fiscal 2010, Disney generated free cash flows of $4,468 million, up 25% from last year, and ended the year with cash and cash equivalents of $2,722 million.

The board approved an increase in annual dividend to 40 cents a share from 35 cents. The higher dividend will be paid on January 18, 2011, to stockholders of record as of December 13, 2010, reflecting the 55th successive year of dividend payment.

Earlier, Disney had paid dividends of $653 million during second-quarter 2010 related to fiscal 2009, $648 million during second-quarter 2009 related to fiscal 2008 and $664 million during second-quarter 2008 related to fiscal 2007.

Another financial mechanism, which Disney makes use of from time to time to create value for shareholders is the share repurchase program. During fiscal 2010, Disney repurchased approximately 80 million shares for approximately $2,669 million. As of October 2, 2010, the company had authorization to buy back 99 million shares.

With signs of recovery in the economy, share repurchases and dividend increases have now become common trends among companies sitting on surplus cash. These strategies not only enhance shareholders' return but also boost earnings per share and raise the market value of the remaining shares.

Currently, we have a Neutral rating on the stock. Moreover, Disney, which competes with CBS Corporation (CBS), holds a Zacks #3 Rank, translating into a short-term ‘Hold' rating, and correlating with our long-term recommendation.

 
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