From the FOOLS themselves a reason to buy, or hold on to, Disney shares now; https://www.fool.com/investing/2022/08/19/down-21-is-walt-di…
OTFoolish
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Walt,
From the FOOLS themselves a reason to buy, or hold on to, Disney shares now…
With money being tight, Disney (NYSE: DIS) is a mixed bag.
Disney’s resorts and Disney Cruises are relatively expensive, so many potential visitors probably will choose less expensive options such as cruises on less expensive lines or stays at less expensive resorts in the Caribbean or Mexico.
But people who decide not to travel at all may turn to Disney’s movies and streaming services for entertainment at home.
So, which dominates?
But Disney’s resorts and Disney Cruises obviously will make a comeback when the economy recovers, probably starting in 2025, so it’s a good long-term play.
Norm.
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The one thing I would add to the article is to consider dollar-cost-averaging this stock. Might be a bit expensive right now, even with the year-to-date drop, given risks both macro and internal. Just keep adding to it (just my opinion of course, not advice), improve cost basis over many months (years).
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Dollar cost averaging was a great thing about Disney’s DRIP as every time the dividend was paid you were automatically purchasing shares no matter what the price was.
It would be nice to have the dividend back seeing that the business is starting to grow again.
Walt
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Walt, I wouldn’t mind having the dividend back, but I’m of two minds: I wonder if maybe we should reduce debt first, then look at a dividend again.
I agree, though, DIS does sort of need a dividend because it is the kind of stock that tends to trade in a narrow range at times (sometimes for a long while; remember when it was base-forming for might have been a few years post 9-11 and even post the Pixar purchase?) A lot of companies obviously do that, but when they have stocks like that, they oftentimes have dividends to make it worthwhile.
But I will say this: go quarterly. If semiannual or annual, I think I’d rather pass on a dividend. I have other stocks that pay dividends (including the monthly O) so maybe I would prefer this one to go for a multiple of growth via growing the D+ bundle. Annual or semiannual just don’t cut it for me these days, and a better investment for all concerned might be the debt.
I agree it looks better for the share price if they reduce the debt but a higher share price only helps if you are looking to sell your stock. As a long term buy and hold investor a dividend gives a nice immediate cash return on investment.
Walt
Walt,
Dollar cost averaging was a great thing about Disney’s DRIP as every time the dividend was paid you were automatically purchasing shares no matter what the price was.
It’s certainly true that a DRIP does effectively “dollar cost average” purchase of additional shares for as long as a dividend remains constant, and most dividends do remain constant for reasonable periods of time under normal circumstances. Of course, there are two types of events that can complicate this.
- Companies often suspend their dividends when cataclysmic events, like the COVID shutdown most recently, disrupt their operations and sales – and these events typically trigger a sharp drop in the price of stock, such that one would like to be buying shares while the stock is at its bottom. But with no dividend, the DRIP purchases also are suspended.
- Companies that realize windfalls often pay special dividends – and this happens at a time when the price of the stock is high because the company is realizing the windfall, resulting in purchase of relatively few shares with the special dividend.
There’s also the reality that most stocks pay dividends only quarterly. I think that “dollar cost average” purchases should occur more frequently – typically monthly or even weekly – so as not to miss transients that happen on a faster time scale. Thus, using a DRIP to “dollar cost average” purchase of shares is not exactly ideal.
That said, I find that I often need to sell a stock that’s paying a dividend to increase another position in order to rebalance my portfolio. Most of the time, it seems more expedient to get the dividend in cash that I can invest in the stocks that have fallen below their respective target positions, thus reducing the shares that I need to sell for rebalancing purposes.
Norm.
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Good points, Norm and Walt.
I would agree that weekly investing is best. And yes, the dividend aspect is more immediate as opposed to debt; lately, I’ve been looking at debt and wonder how that will affect interest income/expense line in the era of higher rates.
esxokm,
I’ve been looking at debt and wonder how that will affect interest income/expense line in the era of higher rates.
It really depends upon the form of the debt and the company’s cash flow and cash reserves.
If a company’s debt is primarily long term with fixed interest rates (either bonds or loans), there won’t be much impact.
If a company has enough cash or free cash flow to pay off debt as it comes due in the near term, there also won’t be much impact.
But any company that has a lot of debt with low interest rates coming due and does not have enough free cash and/or cash flow to pay it off will have to borrow money at higher interest rates to pay it off. That will be a BIG hit.
The bottom line is that some companies are in much worse situations than others with respect to debt. Some companies that have to borrow at significantly higher interest rates to avoid default undoubtedly will be in real trouble, and probably headed into bankruptcy.
Norm.