Disney Goes Big On Dividend Hike (DIS)

We recently gave a breakdown of each and every DJIA component as far as which companies were and were not likely to raise their dividend payouts in the very near future.  The Walt Disney Company (NYSE: DIS) is one we expected would raise the dividend, and that has now been announced.  What is amazing is by how much the hike is. It goes above and beyond what we were expecting.

This was a low yield for a DJIA component at 1.2% currently, but the company just increased the amount of its dividend payout by half.  Most DJIA components do not raise their payouts by 50%.

The company declared an annual dividend, rather than a quarterly dividend, of $0.60 per share.  Investors have a payable date of January 18, 2012 for holders of record at the close on December 16, 2011.

Investors should care about this move.  Disney’s dividend history has tended toward double-digit dividend hikes when it has voted to raise the payouts in the past, but we have not seen anything like this high of a dividend boost in years and years from this company even if this marks the 56th consecutive year of dividend payments.

Dividends are better indicators of an underlying business than share buybacks or other “dividend alternatives” that are usually seen.  A company may buy shares because it thinks they are cheap, but increasing a dividend payout is an indicator that earnings should remain strong for years into the future.  Companies generally do not like to cut dividends.

Disney may have a big boost today, but the payout ratio is barely expected to be 20% as the Thomson Reuters estimate for fiscal September-2012 is $2.90 EPS.  We would like to see a move away from this annual payment, but that may just be a semantic around mechanics rather than structure.

JON C. OGG