February 13th, 2014
by Mitchell Clark, Profit Confidential
The Walt Disney Company (DIS) powered ahead after announcing earnings results that handily beat Wall Street consensus.
The company's diluted earnings per share increased a substantial 34% from $0.77 to $1.03. Sales for the quarter ended December 28, 2013 grew nine percent to $12.3 billion on a strong performance from studio entertainment and the commercial success of Frozen and Thor: The Dark World.
Once again, the company's cash position improved materially. Several firms boosted their price targets on the stock and earnings estimates for future periods.
Disney has an uncanny ability to generate growth in an otherwise lackluster environment, illustrating the relative outperformance of media networks, movies, and related consumer products.
The company experienced double-digit comparable growth in studio entertainment, consumer products, and its interactive businesses. This past December, Disney boosted its annual cash dividend by 15% to $0.86 per share. (See "Large-Cap Stocks the Place to Be in 2014?")
Disney seems to have continued operating momentum on its side, as its theme park business is growing. This division is the second-largest in terms of revenue contribution after media networks.
In terms of blue chips, Disney is not the stock with the highest yield in the marketplace. Its current yield is approximately 1.2%.
It's not a position worth chasing, but it is worthy of consideration when it's down or when the stock market is going through periods of poor investor sentiment.
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Stocks have been bouncing around, quite trendless since the beginning of the year. Investor sentiment has been shaken by emerging market action and currency movements. Economic data has also been all over the map. Some days, there's good news; other days, there's not.
The cold weather is definitely evident in the economic data and the marketplace knows this. There isn't a lot of reason to expect further capital gains near-term, but there is continued certainty regarding short-term interest rates.
One blue chip company that's looking much more attractive in this market is Johnson & Johnson (JNJ). The stock is well off its high of $95.99 a share and its dividend yield has moved back up to the three-percent level.
Wall Street has consistently been increasing the company's earnings estimates for the coming quarter, this fiscal year and next.
No doubt the stock is due for a rest like so many other dividend-paying blue chips that did great in 2013. But for long-term portfolios, a company like Johnson & Johnson is a proven wealth creator. Dividend reinvestment is absolutely a worthwhile investment strategy with this kind of diversified healthcare company.
I still view dividend income as key to absolute returns this year, especially after last year's huge capital gains. Investment returns from dividends are perhaps the most reliable financial metric that can be garnered from the equity market.
It's time for earnings to catch up to stock prices over the next couple of quarters, but the cash hoards at large corporations offer very good fundamentals for increasing dividends towards the end of the year.