NYSE: DIS as Income Investment

Disney Deadpool

Disney seems like a safe bet as a long term value investment, stock appreciation and dividend play…

As a source of original content, NYSE: DIS is exceptional because of its pure potential to crank out story after story, and leverage great iconic characters from Star Wars, Marvel, Pixar and Disney’s own titles. When combined with vertical integration and innovations in immersive technology such as CGI, virtual reality, artificial intelligence (AI), online gaming and the Internet, an entertainment company like Disney seems well positioned for these media trends.

Disney Deadpool

The company has been under attack in the past couple of years due to ESPN’s relatively poor performance. Most recently analysts have been critical of DIS for announcing that it will part ways with Netflix, to develop its own streaming video service.

In the short term, this looks bad, because DIS will need to replace the subscribers it has through Netflix with its own service… But in the long term this is exactly what Disney needs to do to compete in the online streaming video space.

Unsurprisingly, the monolithic stock market can’t see beyond the next few quarters to predict what the company has in store for it in 5 or 10 years.

While Disney is late to the streaming video service party, I don’t think that matters at all… Entertainment is their space. And they can learn from the paths blazed by Hulu, Netflix, HBO, Amazon and Apple.

Indeed, the sheer amount of content Disney has access to (the library of Marvel characters alone boggles the mind in terms of virtual reality potential) will make it easier for Disney… Unlike, say, Apple which has to start from scratch in developing original content, Disney can hit the ground running with a cord-cutting service.

In the long term, a streaming service will make it easier for Disney to serve it’s customers directly while reducing distribution costs and marketing.

Apple is schooling itself on developing original content to distribute through Apple TV and Apple Music. While it is likely not around the corner, I could see Apple wanting to acquire Disney.

While an acquisition of DIS might seem crazy considering Disney’s market cap of $168B, Apple has a long history with Disney, going back to Steve Jobs’ partnership with Disney through Pixar, which was eventually acquired by Disney. Indeed, with $261.5 billion dollars in cash, Apple is one of the only, if not the only, player in the technology space that could acquire the entire company for cash… And still have $100B in the bank… And that’s only in 2017. How much cash will Apple have in 2018? 2019? 2020? Indeed, with the new iPhone 8 or iPhone X or whatever it will be called, Apple’s cash hoard will likely increase by tens of billions. I actually predict that with the launch of the new iPhone, HomePod, Apple’s Airpods, and the new iPad Pro and Apple Watch, the 2017 holiday season will be Apple’s largest yet.

The dividend yield is relatively low at around 1.5%. However, the stock has been more or less flat for a couple of years after it took a breather from a stratospheric ride from 2009. The DIS P/E ratio is not high compared to the S&P average. From a Disney dividend perspective, the company’s free cash flow should continue to increase as it transitions more of its business to digital, which only improves the potential for Disney to increase its biannual dividend.

DIS could be a safe long term bet on a media company with incredible assets, and for income, dividend growth and price appreciation.