Kids Love Disney and So Should You

Brendan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

You’ve brainstormed vacation spots, assessed financial data, and completed your homework. Now you’re asking yourself, “Where do I go from here?”

First, consult your notes. Part 1 reviewed liquidity, financial leverage, and asset management ratios. Then, Part 2 analyzed profitability and market value ratios.

A “No Brainer”

As you recall, Disney (NYSE: DIS) utilizes its assets well, especially considering its large amount of property, plant, and equipment. Additionally, it is poised for revenue increases from the coming Star War series as well as from Hong Kong Disneyland.

Disney’s Shanghai theme park should also be a home run—so, think long term. Even with an initial investment of $4 billion, and projected EBITDA of nearly $400 million, the firm is further positioning itself as a market leader.

Even better, though, is that Disney’s other business segments are growing and generating profits. Acquiring (nearly pilfering) Marvel Entertainment in 2009 for about $4 billion seems to be paying off nicely. For example, The Avengers grossed over $1.5 billion in the box office. Now, analysts anticipate that Iron Man 3 could come near, or even exceed, that mark. Plus, consider the future revenue streams from merchandise! Clearly, Disney made a phenomenal forward looking acquisition. It will continue to reap the benefits.

Competitive Landscape

Viacom (NASDAQ: VIAB) will also gain from Marvel’s productions. Its subsidiary, Paramount, is still receiving money on an 8% proceed agreement with Marvel in exchange for distributing Marvel films. Additionally, Paramount will earn 9% of the proceeds from Iron Man 3.

Connecting this information with Viacom’s ratios and its quarterly dividend payments seem to make it a favorable investment. However, I anticipate the stock will fluctuate around its existing support level of $64. To move forward, management must address the 18% net loss for last quarter, the unfavorable decreases in its programs being distributed, and the aggressive expansion from competitors. Be on the lookout for the company news releases.

Like Disney, Time Warner (NYSE: TWX) is a consistent dividend stock poised for growth. It recently posted 24% first quarter profit. Its long term profit potential is even better, though. With the spinoff of its Time, Inc. magazine division—with an average enterprise value of $3.9 billion—Time Warner is shedding a heavy asset and production based component of its business. Additionally, by divesting Time Inc., the managers will be able to better focus, the structure will be leaner, and stockholders will likely receive the created value.

Thus far, Time Warner has purchased nearly $870 million of its stock, and it is to gain from its new capital structure. As seen below, its price is outperforming the S&P. But, the major increase from about 5%-15% growth clearly shows that stockholders are in favor of the direction of Time Warner, especially since the public announcement to sell Time Inc.

Need another reason to choose Disney?

Look at dividend payments.

 Current Yield2002 Dividend2012 DividendCompound Growth
Disney 1.20% $0.21 $0.75 13.58%

If we assess dividend payments from the past 10 years, we see that Disney’s CAGR of dividends paid is over 13%! With current inflation rates, such a finding is coveted and hard to beat.

Earlier this year, Comcast (NASDAQ: CMCSA) increased its annualized dividend payment by 20% to $0.78. However, even with an increase in revenue, earnings, and free cash flow, the firm continues to lose a valuable customer base. It has lost nearly 360,000 video customers over the past year, and with increasing prices that number will further increase. The problem is that increasing revenues and decreasing customers means that Comcast is receiving a higher margin, at the expense of customers. And, in such a tight industry with Netflix, for instance, Comcast may soon be losing more than just customers.

Conclusion

If you’re thinking about a lower risk, long term investment, consider adding Time Warner to the mix. If you look to make money in short swings in days or weeks, you have some options.

But one thing is for sure: stick with Disney.

It’s easy to forget that Walt Disney is more than just the House of Mouse. True, Disney amusement parks around the world hosted more than 121 million guests in 2011. But from its vast catalog of characters to its monster collection of media networks, much of Disney’s allure for investors lies in its diversity, and The Motley Fool's premium research report lays out the case for investing in Disney today. This report includes the key items investors must watch as well as the opportunities and threats the company faces going forward. So don't miss out -- simply click here now to claim your copy today.


Brendan Marasco has no position in any stocks mentioned. The Motley Fool recommends Walt Disney. The Motley Fool owns shares of Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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