Shares of Walt Disney Co (NYSE:DIS) stock are in correction and it is, quite simply, a great time to be looking at this powerhouse brand.
Even the finest company with the best earnings prospects can’t escape the short-term trading action in capital markets.
Being a Dow component, Disney is fully susceptible to the perpetual roller coaster ride that is investor sentiment.
But that doesn’t mean that Disney stock isn’t a good long-term investment.
The company should keep on producing solid sales and earnings growth. Disney has plenty of cash on its books, it’s buying back a lot of its own shares, and the prospects for another increase to dividends remains excellent.
The current market correction has been a long time coming. With oil prices tanking, Chinese and U.S. economic data trending lower, and a new rising interest rate environment, it’s no wonder the broader market is in turmoil.
I still think institutional investors will want to buy earnings predictability and earnings safety going forward in this slow growth world. Disney stock has proven to be one of the best large-cap brands around.
Why Dividend Income Is So Important
In a slow-growth world with good prospects for rising price inflation, capital gains potential for the stock market is limited. We know that stocks have already gone up significantly, so it’s not unreasonable to have a few years of price consolidation.
Even a growth stock investor can benefit from some dividend-paying stocks in a portfolio. A few brand-name anchor positions helps to mitigate risk.
If dividend income isn’t a priority, automatic dividend reinvestment is a great way to build a growing position in a solid franchise over time. Disney stock is a great example. It’s the kind of blue-chip stock appropriate for long-term plans.
The company’s medium-term stock chart is featured below:
Chart courtesy of www.StockCharts.com
Of course, the business cycle exists even for such solid businesses like Disney. While affiliate fees at the company’s media networks division improved last year, the Street expects this trend to slow near-term.
Disney’s parks and resorts division did an excellent job last year of increasing prices without affecting demand (good for stockholders, but not so good for holiday-goers).
The studio entertainment division still has a number of burgeoning movie franchises. Star Wars will be a boon to earnings, but the Street has already discounted this reality.
Here’s the Bottom Line on Disney Stock
Earnings estimates for the company’s upcoming periods have been going up and down. But the overall trend has been on the upswing and that’s an accomplishment in the current environment.
DIS stock will trade with the broader market on a near-term basis. The next catalyst for the position will be its 2016 fiscal first-quarter earnings results, due February 9, 2016.
The current market correction is no big surprise and it probably has more legs going forward. However, DIS stock has the operational momentum to outperform other multinationals; Disney stock is the kind of blue-chip, dividend-paying stock that can anchor a long-term portfolio.