By: Dividend Sensei
Few stocks are truly buy and hold forever investments, because business models can change and investment thesi can break. However, there are some rare exceptions when a company has such a wide moat and exceptional assets that its bright future is all but assured. Let’s take a look at three reasons why I consider Disney (DIS) to be a great buy and hold forever income growth investment right now. In fact, this dividend dream stock is likely to generate about 13% annual total returns over the coming years, which is two to three times what the S&P 500 is likely to deliver.
Disney: A Growing Global Entertainment Empire That’s A Money Minting Machine
Disney is a global entertainment powerhouse owning some of the most valuable entertainment brands in the world. These include:
- ESPN: the unquestioned leader in US live sports
- Disney Channel (leading children focused cable network)
- ABC: reaching 116 million American households
- Live action movies (like Beauty and the Beast, which grossed almost $1.3 billion)
- Disney animation (Frozen grossed almost $1.3 billion)
- Pixar animation: (Incredibles 2 just set an animated record with a $182 million domestic opening weekend and over $600 million total gross)
- Star Wars: (Force Awakens $2.1 billion global box office)
- The Marvel Cinematic Universe (Avengers Infinity War over $2 billion global box office, MCU 20 films about $7 billion gross)
- 7 of the 12 most visited theme parks on earth (earnings growing at 15% annually)
In it studio segment Disney is now on track to gross over $6 billion at the global box office for the third straight year. And with so many powerful movie brands to milk, that cash cow (studio sales up 20% YOY in the last quarter) is likely to continue for years to come. For instance, Marvel has planned out its three annual film release schedule through 2028.
That’s especially true now that Disney won the bidding war for Fox and is adding the following world class assets to its already impressive collection.
- Fox Broadcasting: Reaches US audience of 116 million households (rights to NFL, college football and MLB)
- Fox TV studios: Makes 70% of Fox’s TV shows (plus some for other networks, like Modern Family on ABC and Homeland for Showtime)
- 20th Century Fox Movie Studio: Makes films such as Avatar, Alien, Predator, Die Hard, Kingsman, Planet of the Apes, and X-Men.
- Cable networks: Over 350 channels reaching 1.4 billion viewers around the globe.
- 100% of Star India: 58 channels in eight languages, monthly audience of 720 million.
- 39% of Sky: British satellite TV company Fox is attempting to buy the rest of.
- 30% of Hulu: America’s second-largest and fastest-growing video streaming provider.
These Fox assets are expected to generate:
- $19.2 billion in annual revenue
- $1.2 billion net income
- $2.2 billion in free cash flow
Fox is also attempting to buy the remainder of SKY, the largest pay TV service in Europe. Basically buying Fox will further add to Disney unbeatable collection of brands and provide it with the content it needs to hopefully become a leading name in video streaming. Disney is planning on launching its own streaming service in 2019 for its massive media library. Meanwhile the company has already launched the ESPN+ streaming platform in 2018. While not providing subscription details, management has said that subscriber growth is ahead of expectations while costs are inline with projections. While at $5 per month ESPN+ isn’t going to be a major money maker for the company management believes it will stabilize the cash cow that is ESPN (subscription losses at ESPN fell from 3% to 2% in the last quarter).
Disney will also own 60% of Hulu, which finished 2017 with 17 million US subscribers and is growing at 40% per year. The bottom line is that with no less than three streaming services up and running by 2019, Disney is well poised to battle Netflix and Amazon Prime for the future of media consumption. How big of a market is streaming expected to grow into? Analyst firm eMarketer estimates that by 2021 there will be 165 million streaming subscribers in the US alone.
And lest we forget, Disney has proven itself a master at cross selling its beloved global brands and converting them into increased amusement park attendance, merchandise sales, and increased global cable subscribers. Now add Fox’s international assets include 350 channels reaching 170 countries. And via Star India Disney will gain a dominant foothold (720 million households) into what’s soon to be the world’s most populous country. India has the fastest growing economy of any major country (over 7% per year) and a middle class that’s projected to hit 547 million by 2025. For context that’s 166% the population of the United States.
CEO Bob Iger, who has overseen Disney’s golden age and all its game changing acquisitions, is staying though June 2021 to oversea the Fox integration. That means that Disney remains in great hands, and will likely continue to fine tune and grow its unstoppable media profit minting machine. A machine that’s likely to generate strong earnings, dividend growth, and market beating returns for the foreseeable future.