Should Disney Cut Its Dividend?

Last week, Dan Loeb called on Disney (DIS) to suspend its dividend. Loeb is a well-known activist investor. Currently, Disney pays a semi-annual dividend of 88 cents per share, each July and December. The company skipped its dividend this summer.

An annual dividend of $1.76 per share works out to over $3 billion per year. Loeb wants Disney to put that cash into its streaming service.

But through it all, Disney’s streaming business has been a notable success story. After making its debut last November, Disney+ had 60.5 million subscribers worldwide by August—well ahead of analysts’ and Disney’s own forecasts. Its other offerings are Hulu, with 36 million, and ESPN+, with 9 million. Next year, Disney is also planning to add an international streaming service similar to Hulu, to be called Star.

Barron’s points out that this is the opposite of what activist investors usually do. They’re known for pursuing short-term profits at the expense of long-term financial health. This time, Loeb is looking at the long term.

I understand Loeb’s thinking, but I think he’s premature. In my view, it all comes down to Covid-19. If a vaccine comes out tomorrow, then Disney’s troubles go away. Disney is a company almost perfectly made to be impacted by the coronavirus.

Relatedly, I floated the idea on Twitter recently of Disneyland leaving California. Most Twitterers responded by saying this was a very farfetched idea. Probably so. Still, the mess of Covid has allowed people to rethink what their business is about, and unthinkable options are now thinkable.

(Note on the chart above. The black line is dividends. Disney switched from an annual to a semi-annual dividend.)

Posted by on October 12th, 2020 at 12:16 pm


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