We’ve upgraded American Key stock The Walt Disney Company to a buy, no longer a hold. We expect its shares to keep going up as its earnings grow quickly. But only resume buying Disney if you need no dividends and you can accept some risks.
We regularly review U.S. Key stock The Walt Disney Company (NYSE—DIS) on The Back Page. Since we published our July 22 issue, its shares have jumped by 53.4 per cent. That’s the most of the 10 conglomerate stocks on The Back Page. Several factors have sent the shares up.
One is the return of successful former chief executive officer Robert Iger. He’s expected to retrace some of his predecessor’s perceived missteps. One example is a planned big jump in the price of Disney’s streaming service. This would lead subscribers to cancel their service or switch to competitors
COVID-19 restrictions have relaxed
A second positive development is the relaxation of COVID-19 travel restrictions. This lets more Americans and foreigners visit theme parks such as DisneyLand in California and DisneyWorld in Florida. Fewer restrictions are also helpful to its movie and cruising businesses, among others.
Disney’s profits are on the mend. In the fiscal year to the end of September, the company earned US$3.53 a share. This year, Disney’s earnings are expected to advance by 17.8 per cent, to $4.16 a share. Next year, Disney’s earnings are expected to surge by 28.8 per cent, to $5.36 a share.
Disney’s earnings are growing briskly
After rising so much since the last time, Disney’s shares also now have upward share price momentum. Once this sets in, the shares can just continue to go up, even past the point at which the shares seem fairly valued.
Just keep in mind some risks with Disney. Obviously, these include new variants of COVID-19 or other communicable diseases such as Ebola; an unexpected slowdown in Disney’s earnings growth; and negative share price momentum.
Indeed, many economists and stock market analysts are predicting that the North American economy will fall into a recession in 2023 – or at least a substantial slowdown. This would likely hurt Disney. After all, some cash-strapped consumers lack the discretionary income to go on costly trips. Particularly as costs jump for essential items such as food, shelter, transportation, and so on.
Disney pays no dividends
The Walt Disney Company, together with its subsidiaries, is a diversified worldwide entertainment company with operations in two segments: Disney Media and Entertainment Distribution and Disney Parks, Experiences and Products.
Despite all of its sources of income, Disney continues to pay no dividends. It writes, “Longer-term…dividends will remain a part of our capital allocation strategy”. But we don’t expect the company to pay dividends any time soon.
The trouble is, a lack of growing dividends makes it more difficult for you to keep up with inflation. Worse, the only way to profit from Disney is for the share price to go up. But share price gains and losses come and go.
If you want to earn growing dividends, consider Key stocks that regularly raise their dividends. We list eight Key stocks that have increased their dividends since we updated our Investment Planning Guide in our November 4 issue.
This is an edited version of an article that was originally published for subscribers in the December 2, 2022, issue of The Investment Reporter. You can profit from the award-winning advice subscribers receive regularly in The Investment Reporter.
The Investment Reporter, MPL Communications Inc.
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