Recent Buy

buyI’m so fortunate to be in a position where I’m able to fairly regularly put capital to work.

And I’m not just putting capital to work. I’m putting it to work by investing in some of the highest-quality businesses in the entire world. And not just any high-quality businesses. But only those that are so increasingly profitable year after year that they gush excess profit. So what to these businesses do with all of this extra cash? They send it to shareholders in the form of not just regular dividend payments, but regular dividend payments that are routinely increasing year in and year out.

It’s all in the name of turning cash into cash flow. And it’s this increasing passive cash flow that will one day fund my expenses, rendering me financially independent.

Again, I’m fortunate.

What happened recently is that I found myself with a little extra cash, which I used to load up my BB gun. I’m generally on the hunt every single day, looking for attractive prey.

Well, attractive prey became even more attractive after a significant drop recently. And so I took advantage of that by unloading a few BBs and bagging a solid catch.

I purchased 15 shares of Walt Disney Co. (DIS) on 8/5/15 for $110.52 per share.

Overview

Walt Disney Co., together with its subsidiaries, is a diversified global media conglomerate.

They operate through five segments: Media Networks (43% of fiscal year 2014 revenue); Parks and Resorts (31%); Studio Entertainment (15%); Consumer Products (8%); and Interactive (3%).

Disney owns a number of different, but complementary, businesses in media and entertainment. Perhaps most well known, they own and operate the Walt Disney World Resort in Florida and the Disneyland Resort in California. They also wholly own, have ownership interests, and/or collect royalties from a number of related parks, cruise lines, and resorts across the world.

But the company is much more than that. They have rather substantial assets in media broadcasting, including the ABC broadcast network and eight television stations. In addition, they own cable assets in ABC Family, Disney Channels, a 50% stake in A&E Television Networks, and an 80% stake in ESPN.

Studio entertainment includes live-action and animated motion pictures, direct-to-video content, musical recordings, and live stage plays. Distribution of this content is primarily through the Walt Disney Pictures, Pixar, Marvel, Touchstone, and LucasFilm brands.

Of course, they also work with publishers, licensees, and retailers throughout the world to manufacture, market, and license consumer goods based on their intellectual property.

Record Quarterly Profit… And The Stock Drops More Than 10%

I analyzed Disney back in December. Not much has changed, so I won’t repeat myself. Instead, I’ll talk about recent results and activity.

Disney recently reported fiscal year 2015 Q3 results, and they were, well, outstanding. EPS was up 13% compared to Q3 2014 and revenue was up 5%.

But the stock plummeted immediately after results came out. In fact, over a two-day period, it was down well over 10% before bouncing back a little bit.

This appears to be a combination of two things.

Primarily, revenue was a bit below expectations. But more to the point, there was some concern over reported modest subscribers losses at flagship cable channel, ESPN.

Second, the stock was already a bit heavy on the valuation, and a pullback wasn’t really all that unreasonable.

However, I’m not really concerned about ESPN in the slightest. The company’s guidance for domestic cable affiliate revenue dropped to the high-single-digit range, which is still pretty appealing. But the company’s other segments remain robust, especially Studio Entertainment. So this might shrink cable’s influence on the company’s bottom line over time, which, in my view, wouldn’t totally be a bad thing. But, holistically, the company is still growing at a rather rapid clip.

Moreover, even while digital content is consumed in different ways as options and variety expand, the fact of the matter is that the vast majority of all sports programming is watched live. And ESPN is still the clear leader when it comes to sports programming. The company is, however, open to selling ESPN directly to the customer at some point down the road. Content consumption might continue to change, but I don’t think the actual value of that content/programming will change much over the foreseeable future. In addition, the company’s Media Networks segment is comprised of a lot more than just ESPN.

Meanwhile, the company has so many exciting projects going on.

Bob Iger discussed Shanghai Disneyland during the conference call, expecting the park to open spring 2016. It was also announced during Disney’s D23 Expo that two new Star Wars lands will open – one in Anaheim’s Disneyland and one in Orlando’s Walt Disney World. These will take a number of years to build, but it’s exciting to think about where this company will be in five years.

Of course, there is also a slate of new movies coming out that portend even more tie-ins down the road. Star Wars: The Force Awakens will be released in December, the first in what will be a new trilogy. A sequel to Frozen has already been announced. And the Marvel universe keeps pumping out hit after hit.

This is just a media and entertainment juggernaut that is mostly firing on all cylinders right now. It’s by far my favorite entertainment/media company in the entire world.

One other quick note is that the company recently surprised investors by abolishing their annual dividend in favor of a semi-annual dividend. On top of that, they increased their dividend by 14.8%… just six months after increasing the dividend by 33.8%.

Risks

Disney’s risks include broader economic slowdowns, which could limit demand for their theme parks, cruise ships, and resorts.

In addition, cable subscription cancellations would reduce demand for and the fees driven from their cable networks. Costs for programming, if not managed properly, could unfavorably impact profit.

They also have to constantly be able to adapt their content to current consumer demand and interest. Content, especially in regards to big-budget films, can be risky in the sense that the demand has to be there to drive profit.

And as a global company, they face currency risks.

Valuation

As I noted earlier, I think part of the reason the stock retreated so aggressively and so quickly after Q3 results was because the stock wasn’t cheap, and any whisper of weakness sent short-sighted investors scurrying. Still not overly cheap after the drop, but I’m willing to pay up for quality here.

The stock trades hands for a P/E ratio of 22.93. This isn’t far off from what the stock was sitting at back in December 2014 when I initiated my position, even though the price has advanced somewhat considerably since. Profit is up quite a bit as well over that time frame, so there you go. I will note, however, that this is well above the five-year average P/E ratio of 18.2 for this stock. But I think that’s more a function of DIS being probably a little too cheap back then rather than a case of it being extraordinarily expensive right now. In addition, the company has transformed quite a bit over just the last five years, leading me to believe that the higher multiple is warranted.

I valued shares using a dividend discount model analysis with a 10% discount rate and a two-stage growth rate: 20% dividend growth for years 1-10 and a 7% terminal growth rate. I used a two-stage model due to DIS’s low yield. The growth rates I used appear to be reasonable to me based on Disney’s historical results, low payout ratio, and penchant for rewarding shareholders with generous dividend increases now that the financial crisis is behind us. The DDM analysis gives me a fair value of $134.36.

Conclusion

This purchase doubled my position in Disney, and I’m really happy about that. The yield isn’t great at 1.2%, so I have to be careful in regards to how much capital I put to work here.

But this remains one of my favorite business models out there. Its customers are extremely loyal, the cross-promotion and tie-ins are unlike anything else out there, and there’s still so much potential for profit and growth moving forward. If I had to bet all my money on Disney being able to grow its dividend at an attractive rate for the next 10 years, that’s a bet I’d feel pretty comfortable making. If the yield were higher (implying a higher payout ratio), I’d want to be even more aggressive here.

As it sits, I’m very happy with this position. But I would absolutely be open to increasing it once more if the price drops closer to $100 over the short term.

This purchase adds $19.80 to my annual dividend income, based on the current $0.66 semi-annual dividend.

I’m going to include a couple of other valuation opinions below, as I use these to concentrate my reasonable valuation estimate:

Morningstar rates DIS as a 4/5 star valuation, with a fair value estimate of $134.00.

S&P Capital IQ rates DIS as a 4/5 star “buy”, with a fair value calculation of $109.10.

I’ll update my Freedom Fund in early September to reflect this recent purchase.

Full Disclosure: Long DIS.

What’s your opinion on Disney? Think it’s a great business? Why or why not? 

Thanks for reading.

Photo Credit: Stuart Miles/FreeDigitalPhotos.net

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99 Comments

  1. Looks good DM! Record profit + lower stock price seems good to me. And a lot of their releases lately seem to have done quite well. Also, the new Star Wars theme park additions will probably due well to boost their theme park sales I would imagine. I’m rather curious to see if/how they will adapt their offerings for tablets/mobile users in the future. Online content viewing and App games for kids? Several possibilities for them there.

    Like you said, the dividend yield may be lower than your usual target, but like Visa/Mastercard they will be around for a long, and will keep on raising them over time. Heh, and if you want more yield to balance it out do a healthcare REIT or pipeline purchase to round your the yield differences 🙂

    All the best and thanks for sharing again!

  2. Nice buy Jason. Walt Disney is in a class by itself between ESPN and the movie studio purchases. Did you also pick up some Walmart today? Don’t tell me I was the only one 🙂
    -Bryan

  3. Great Buy Jason ! This company is one I spend most of my vacay money at and have 2 trips coming up to WDW in Florida. I am coming from Western Canada.

    I am one of those “loyal” fanbases you speak of because I do races ( RunDisney), which is another revenue stream they have that you may have not been aware of. Big money maker haha

    I have a few shares in Disney and I like to buy on pull backs and have been waiting patiently. It may not pay the biggest dividend right now but long term I think you have made a great choice in terms of consistency.

    Now if you excuse me, I am about to go pad your retirement fund by finishing my trip plan haha ! First time commentor, long time reader ! Keep Inspiring !

  4. Good purchase, DM! I know you (& everyone) want to be officially FI as soon as possible, and it’s easier to get there with 3%-4% yielders, but I think it’s very smart to mix in high dividend-growth stocks as well even if the current yield is unsatisfying. Just today I purchased a similar style stock in BDX at just under $147. 21x 2015 earnings isn’t “cheap”, but the company’s dividend history and future growth is very enticing.

    Best of luck and thanks for all your terrific content.

    Chris

  5. DW,

    Definitely a lot of exciting possibilities here. I’m confident this will be a bigger and better company come five years from now. 🙂

    Yeah, I continue to balance out those low-yielding stocks with those that yield quite a bit more, and the blended result is satisfactory right now. And I think the growth should be strong looking out over the very long term, which is what I have to always keep my eye on. If I really want to live off of this income for decades, I have to be mindful of growth and sustainability out over the long haul, not just today.

    Thanks for dropping by!

    Cheers.

  6. Good stock! P/E ratio of 22.93 and low yield can be improve.
    Today almost buy WMT. 69$ …I Think it’s a good price despite poor earnings…i’m waiting to see price around 66-68$. Patience.

    Cheers from Spain.

  7. Bryan,

    Agreed. I really don’t see how they have a true peer. They’re in their own league. Could someone take $190 billion and recreate what they have? I don’t see how.

    Nice move there on WMT. The valuation is pretty compelling in this market. I didn’t add any, though. I’m not sure if I’m ever going to buy more WMT. The more I think about it, the happier I am with what I have for retailers. Not adding anymore WMT gives me a little room for one more retailer in there, so that’s something I’m mindful of as well. Not my favorite industry, but WMT is still a juggernaut. Glad to be a fellow shareholder! 🙂

    Best regards.

  8. Mark,

    Thanks for following along. Much appreciated! 🙂

    I’m with you on DIS. Add on the dips and hold on for the rest of your life. Should be a solid recipe for success. Wish I would have initiated my position way before the end of last year, but such is life. I’m very excited for the future here. The company is really unparalleled.

    Glad to be a fellow business partner with you here. I think we’ll continue to do well.

    Best wishes!

  9. DR,

    Definitely. I’m hesitant to go too crazy here due to that low yield, but I wouldn’t mind another tranche down there below $100. Wouldn’t have to drop much to get there, so we’ll see. 🙂

    Cheers!

  10. Chris,

    Definitely. I like to mix those Stage 1 stocks in with the Stage 3 stocks, which just add to what those 3%-4% yielders offer. I do, however, have to be careful not to go too crazy there with those low-yielding stocks due to my rather tight schedule. Love high-quality companies with solid growth prospects, but I don’t want to put off financial independence by a year or two in the name of it. So it’s just a balancing act. And I’m mindful of the fact that there are really great stocks across the spectrum of yield. I do regret not buying some low-yielding stocks earlier on, like DIS. But I was busy building up the dividend income stream, which gave me the flexibility/freedom to quit my job last year. So I can’t regret it too much.

    But I’ve got some great Stage 3 stocks with the likes of V, GD, ITC, MDT, and DIS leading the way.

    Thanks for adding that!

    Best wishes.

  11. Javier,

    Yeah, DIS isn’t particularly cheap here. But I remember hearing the same thing at $93. And $80. And $70. I’m okay paying up for a company like DIS, though.

    WMT could very well drop to $66 or so. You just never know. I like to buy when the value and quality is there, but one’s actions depends on what they think WMT is really worth.

    Happy shopping over there. 🙂

    Cheers!

  12. Jeez Jason making more purchases recently than what I can keep up with!
    But solid purchase in DIS, may be a premium of a price but I think it’s a premiuim and very well run company, good stuff!

  13. Good Day Jason
    DIS is a great stock. IT not long ago increased its dividend, and I see so many more increases over time. with all DIS has under its umbrella, movies, parks& resorts, tv entertainment. DIS is a power house company and stock. no doubt a stock that dividend investors should have. way to go Jason with this buy.

    Cheers

  14. I bought 17 shares of DIS in early January at $94 a share. I knew that ESPN had something special after watching my Alma mater of The Ohio State take down the first ever College Football Playoffs as the underdog. I fully expect DIS to capitalize off this new format and increase viewership and advertising dollars for years to come. It also doesn’t hurt that DIS has a backlog of money making projects outside of ESPN just waiting to be released.

    DIS happens to be one of those personal stocks that you have to own because you use the product everyday (ESPN and Dividendmantra are the top two pages on my Google Chrome bar). However you can’t just dive right in without paying attention to the valuation. I am still waiting for a reasonable pullback on the valuations for PEP and Chipotle (a dream at its current PE of 46).

    I don’t know if I am ready to dilute my cost basis for DIS based on the current valuation although I do feel that it has tremendous growth potential for at least the next decade so maybe the current valuation is reasonable. I’m glad to at least have a piece of the action, but I am not ready to back the truck up just yet. My other low yielding stocks of GILD and AAPL look to be steals at a valuation level and I would be more apt to buy more of those two at the moment before DIS.

  15. I do agree this is a great company but valuations are through the roof with the current prices, neither the yield or the high PE justifies buying at these levels, I think we’ll see 90s in the coming days.

  16. DIS has a semi-annual dividend now? I saw the latest distribution was smaller, but thought it was a one-time accounting-based thing. Good to know.

    DIS has been sitting there at the very bottom of my watchlist forever, because of the high valuation. But, it’s a tricky company to value because there is literally no other company like it. You can’t really compare it to other media companies, because they’re not even in the same league. The closest comparison would probably be something like SBUX or MKC, which totally dominate their own respective markets.

  17. I grabbed some Disney right after the earnings report. I use Loyal 3 since I am new to investing and can only put small amounts of money in so far. But my dividend portfolio is growing!

  18. Great purchase here Jason! DIS is a little out of my price range at the moment considering yield relative to other companies. But no doubt, after the drop a few weeks back I placed DIS on my watchlist for further research.

    I appreciate the thorough analysis, it definitely helps us other DGI’ers out here on the research part. Although DD will still need to be done for our specific objectives.

    Overall, great pickup and analysis. Best of luck with the purchase!

    Regards,
    Dividend Odyssey

  19. Another great purchase, DM. DIS sure is firing on all cylinders – the company is looking more and more attractive to dividend investors now that they have moved to the semi-annual basis and the dividend growth is great. I will be looking to add this to my portfolio..just need to prioritize it.

    Thanks for sharing and congrats on adding more to your div income. Keep up the great work
    R2R

  20. CG,

    Hey, just doing my best to fight for freedom. Buying as much as I can, when I can. 🙂

    DIS is definitely a premium company. Tough to always get a smokin’ deal on high-quality stuff, which is one reason I regret not buying DIS (and some other stocks) even earlier. But you live and you learn.

    Thanks for stopping by!

    Cheers.

  21. Michael,

    Definitely a powerhouse of a company. Very excited to see what things look like in five or ten years. And I’m even more excited that I’m along for the ride as a shareholder. We’ll see how it goes!

    Hope all is well.

    Best regards.

  22. TDM,

    Yeah, I’m right there with you, buying DIS last December for around a similar price. I was okay paying a higher price here because the valuation isn’t that far off from what it was wit DIS back at $94. So it all just depends on what they do from here.

    As far as GILD and AAPL go, I agree that they’re both sitting at better valuations than DIS. But really different stocks with different levels of certainty. I’d be comfortable with a large position in DIS moving forward, but not so much with GILD and AAPL. But that’s what makes it a market. Different and plentiful opportunities for everyone. 🙂

    Thanks for stopping by and sharing. Keep it up over there!

    Cheers.

  23. John,

    We’ll see. I remember hearing DIS was expensive in the mid-$90s last year when I initiated my position. That would now be a rather solid pullback and a pretty good price after the considerable run up. I don’t think the stock is particularly expensive here after the combination of an outstanding quarter and a pullback on the stock (my valuation and M* both have it about it undervalued by a goo margin), but I’d love to see it back in the $90s in the coming days. I’d feel comfortable with one more tranche at that point. 🙂

    Thanks for stopping in!

    Take care.

  24. Justin,

    Yeah, the semi-annual dividend is pretty nice from the perspective of smoothing out the cash flow. But from the perspective of the time value of money, the annual dividend was better. But investors prefer those dividends spread out a bit, so this will probably bring about more attention. I was far more impressed with that rather large dividend increase that came not long after the monster increase late last year. 🙂

    It’s funny that so many people question the valuation of DIS. I’ve honestly never thought it was particularly expensive. It wasn’t cheap before the pullback and extremely strong quarter, but it appears to be a pretty good value relative to the quality and growth potential after that. We have a lot of companies in the consumer space sporting higher P/E ratios even though the growth is considerably lower, so I’m pretty enthusiastic about DIS at 22 or 23 times earnings. No steal for sure, but it all depends on whether or not they keep that growth profile up. With the projects they’ve got going on, I think they should do pretty well, but we’ll see!

    Best wishes.

  25. Jamieson,

    You’d be surprised at what’s possible with slow, steady additions. A little bit here and a little bit there can add up over time. Keep it up! 🙂

    Take care.

  26. DO,

    I hear you there. I passed up on DIS for years due to the low yield. I now regret that. But back then, there were a lot of stocks that were in really obvious value territory and I was busy building up that dividend income to a level I was comfortable with. So the pickings weren’t slim back a few years ago. But pickings have become a bit more slim, DIS isn’t crazy expensive here, and I have the room for that lower yield. But, in a different position, DIS might not make a ton of sense. Just depends on where you’re at with everything. 🙂

    The good news is it’s a big market out there, so there’s something for every investor.

    Thanks for dropping by. Hope all is well with your journey!

    Best regards.

  27. R2R,

    Thanks, bud!

    This is definitely a dividend “growth” stock here. Not a lot of current yield, so you have to really be thinking about income sustainability and growth over the next, say, 20 or 30 years. But it mixes in well with the high-yield stocks I own, like the REITs and pipeline stocks where there’s more uncertainty but more income now. Just trying to balance out income and growth needs for the Jason of 2015 and the Jason of 2040. 🙂

    Thanks for stopping in. Hope all is well over there!

    Cheers.

  28. DIS is a good buy, DM. I’ve considered it but its dividend is bit low for my taste. If the price drops further, I will consider adding it in my portfolio. Guess, patience is a virtue sometime. Lets keep racing to FI!

  29. R2R,

    I hear you there. The low yield isn’t for everyone. One of my biggest regrets as an investor is passing up on a lot of stocks with low yields over the years, but I’m doing my best to open myself up to high-quality companies that maybe don’t offer a lot of current yield now that the portfolio is humming along. But that’s not a luxury everyone has. So you have to really be careful there with your income needs against your long-term goals.

    Thanks for stopping by!

    Best regards.

  30. While I don’t own DIS, there’s no denying the solid nature of their business as well as generous dividend history. Like you, I think I’m looking to add to my current positions more so than initiate new ones. In fact, I just posted my recent buy in RY. Maybe you can see it or not. Having GoDaddy hosting issues. Comes with the territory I guess.

  31. Jason,

    Always nice to see a quality company drop 15%. At what drop would you consider initiating NKE or SBUX ? Both very high quality companies as well, but still sporting lofty valuations..

    Guy

  32. DH,

    Nice move there with RY. Gotta love the Canadian banks here. Definitely some headwinds, but the value is there.

    Keep it up over there!

    Cheers.

  33. Guy,

    Indeed. Wish I would have waited one more day on DIS, but you just can’t time the market. If it drops down below $100, I’d definitely be interested in another tranche. We’ll see.

    SBUX is a stock I so wish I would have bought a while ago. Really missed the boat with that. Just so many great stocks out there to choose from. Tough to buy them all. Capital is always limited. SBUX is obviously very expensive here at more than 32 times earnings. It’s grown a little faster than DIS over the last decade, but you’re looking at a pretty big gap between the valuations there. I took a look at SBUX not long ago and concluded that $50 was on the upper end of what I could see paying, but I just can’t/won’t pay the current price for the stock. I don’t mind paying up for quality, but I don’t condone consciously overpaying by a significant degree. So a 15% pullback would have me interested there… or a big jump in earnings with a stock price that simultaneously stays static. I don’t have to own SBUX to get to where I’m going, but I’d sure like to have it in the collection.

    Cheers!

  34. Nice one DM.

    I like the buy, though I feel that we will be seing Disney below 100 in the near future. If that happens I would ceritanly be interessted.

    You just keep adding and adding, I admire that! 🙂

    Take care
    Dividend Freedom

  35. I was wondering, yesterday I ran into a term called “dividend trap”. I couldn’t find anything about it on your site, so I was curious what your feelings towards the so-called “dividend trap” are. Is it something you worry about? Or something you manage to keep those types of dividend-paying companies at bay somehow? Is it even something that can be prevented? 🙂

  36. Jason:
    This is one I am surprised to see in a portfolio that is geared to generate dividends.
    Yes, over the long term you’ll do fine with it. But as you say yourself ,you have to be a bit careful how much you devote to it. The metrics are acceptable for a growth stock and some day you’ll reap those benefits.
    It won’t add much to you snowball right now.Years down the road you’ll be happy about this purchase. The reason for your happiness will be stock price appreciation plus dividend increases. You will be happy with your yield on cost for sure.
    This company used to pay its dividend once at the end of each year and now does so twice a year. Maybe they will pay quarterly some time in the future.
    Keep up the good work, I know it’s fun to see the tree bear fruits each month.

  37. Hi Jason,

    I’m liking DIS very much and I think it’s my favourite company out of my portfolio. I liked the news about the park expansions coming to anaheim and orlando. I’m now planning my first trip ever to the states and to orlando. Going to visit Walt Disney World after the Star Wars expansion is finished. It’s going to be expensive but in my opinion worth every cent.

    It’s a joy to read your articles, please keep em coming 🙂

  38. Jason,

    I love the move. I am planning on adding more to my DIS position over the next few months via Loyal3. I hope the market bats it down even more, their fool’s errand is our reward.

    – Gremlin

  39. I’ve been looking at Disney as well, nice to see you agree. I enjoy reading your stock analysis. I’m a newbie and you make it easy to understand and I always learn something new.

  40. Glad to be a fellow shareholder with you on DIS Jason!

    This little setback for them has provided a decent entry point (not awesome but decent). May get just a bit better and if so, I will continue to buy.

    I agree that the yield is on the low side, I more look at growth on DIS over the long term.

    Best regards,

    Ray

  41. Jason,
    Disney is a great company! Yesterday Disney closed at $106.94. The dividend yield is 1.21%. I wonder if you can help me to understand the analyst ratings and reports? Do you like one better than the other or do you put more faith in one report over another report? S&P Capital IQ rates them a 4 star and a buy, on August 15, 2015. Thomson Reuters rates them a 7 and states that they have been on a negative trend for the pass 6 weeks. But, they do rate them as a buy. Market Edge gave them a downgrade on 8-17-2015. Their opinion is to avoid the stock and recommend if you are long, to close your position or monitor the stock closely. How can the same company be seem in so more different ways? As a young investor, trying to be financially independent in the future. I am confused from all of this information about Disney.
    Next question, if you are all about dividend growth, then why pick such a low yield as Disney? Why not pick some of the dividend aristocrats, some of them are at a 52 week low? Or maybe, pick one of the energy stocks that is really on sale? Since you paid $110.52 per share for Disney and you state that DDM analysis has Disney at a fair value of $134.36. It would appear that there are some better stocks to choose from than Disney for a dividend investor? Stocks with a higher dividend will help you to reach your goal much quicker!
    Jason, thanks for sharing your knowledge and wisdom with your followers! You are having a very positive impact on a lot of people!
    Nut501

  42. It’s when the dividend looks good, and the price seems good, but the fundamentals aren’t so hot. Two examples would be $CVX and $BBL.

    $CVX currently has negative cash flow and their dividend isn’t supported in the current environment but they still are paying it out. With $BBL, if metal prices continue to decline, they’ll be in trouble.

    I’ve always heard it referred to as a value trap. It doesn’t mean those companies are necessarily going to cut their dividend (or even that they’re bad buys right now), but the potential is there. If you think a company might be a value trap, you should do more due diligence then you normally would or outright avoid it.

    The most recent value trap I fell into was $ARCP (granted, there were other things going on there) and the most recent one I may have entered is $BP.

  43. Just bought UTX at $98 and WMT at $68. I have MMM on watch list to buy if it gets to $140. What is your opinion on DOV and Qcom? and I am very tempted to buy WFM.

  44. Jason my friend….Long time no talk to. Hope all is well. I really like your purchase of Disney, buying quality at a value. Also, if BBL. Goes below $30, I am selling the house, wife, and bass boat, well maybe not the bass boat…….Only kidding Jason, but you get my point. take care my friend..

    CapeCapMgmt

    ” Cape”

  45. I think we are entering extraordinary times with commodities oversupply and price route where a lot of cyclicals will be forced to cut. I think it will start with BBL next week, but BP is huge trouble as well. I think this is going to hurt many dividend growth investor including myself.

  46. Great Buy There Jason.
    Iv been long DIS for 3 years, and it just keeps on growing, and the dividend is growing at a good pace, and lots of FCF to allow them to keep that up.
    Best of luck

  47. DF,

    I know nothing other than saving and buying and keeping at it 100%. Freedom isn’t going to buy itself, right? 🙂

    We’ll see if DIS drops below $100. It really wouldn’t take much to get there. A slight shrug in the market will bring down everything, including DIS. That’s something I certainly wouldn’t mind seeing.

    Thanks for dropping by!

    Best regards.

  48. Joram,

    I’m not real sure what that means or what that is. I’ve heard of the term “value trap” before. I’m guessing it’s something similar. Value traps are hard to really decipher because you can’t predict the future. So it’s difficult to tell if a rough patch is temporary or more long term in nature. As far as avoiding dividend cuts/eliminations, that’s basically just fundamental due diligence on the investor’s part. Can’t predict black swan events, but if you see weak fundamentals and buy anyway, that’s on you if something unfavorable occurs.

    Cheers!

  49. Amegalo,

    Well, my portfolio is geared to generate both current dividends and future growth in those dividends. I have to think about living off of dividend income for the next 40 or 50 years. As such, it’s prudent to think about which companies can generate substantial growth in income for decades on end. And DIS strikes me as one of the better choices in that regard. It’ll take a while for it to catch up to stocks with a 3% to 4% yield, but I have the time and patience. If I were older, though, I’d probably not be as interested. All depends on your time frame and goals.

    In addition, I love high-quality businesses. I’ve learned over time to be a bit lax on the yield requirement. I’ve missed out on a lot of great businesses over the years because the yield wasn’t quite there for me.

    We’ll see how it goes. Super excited to see how things play out for DIS over the next decade or two. I’m very glad to be along for the ride. 🙂

    Take care!

  50. Great buy Jason! Amazingly the profits announcement coincided with a drop in market price!

  51. Sampo,

    Thanks so much. Appreciate the support!

    Glad to hear you’ll be making a trip over after the Star Wars expansion is all done. I may even want to check out something like that myself. Disney World is only like two hours away from me. And I’m a huge fan of the Star Wars movies. So I might take a trip over there at some point down the road. 🙂

    Hope all is well!

    Best regards.

  52. Gremlin,

    I’m with you. I’d love to see DIS back below $100. Down below $90 would be even better. 🙂

    Thanks for dropping by!

    Best wishes.

  53. Mrs. Budgets,

    Thanks. So glad you enjoy the analysis. This article wasn’t really an analysis, per se – I linked to my analysis in the article. But I wanted to quickly highlight some of the recent news and put it in proper context. 🙂

    Stay in touch!

    Best regards.

  54. Ray,

    I’m with you. This was a pretty solid opportunity to add a little more to an existing position. I don’t want to go too crazy on any stock trading for a P/E ratio of ~23, but you’ve got a lot of stocks out there trading for similar or higher multiples with much less growth. So it’s all relative. I’m right in line with Morningstar on this one, and that would show that there’s a pretty solid margin of safety there. I remember hearing it was expensive at $93 last year, but I don’t think that was the case then. Certainly hasn’t been a steal in a long time now, but I doubt anyone would be unhappy buying DIS here and holding for the next couple decades.

    Glad to be a fellow shareholder with you. The next few years could be really, really exciting. 🙂

    Cheers!

  55. Nut501,

    I prefer Morningstar over S&P Capital IQ, but I really prefer my own analysis above all. I include the analyst information for two reasons. First, it just provides you readers more value in the form of outside opinions. Second, I just like to compare what I come up with to that of some analysts to see if I’m way off base. Generally, I’m not. Although, I place the most faith in my own opinion and kind of walk my own path there.

    “Next question, if you are all about dividend growth, then why pick such a low yield as Disney?”

    I think you answered that question yourself. The word “growth” in dividend growth implies growth, not yield. DIS sports much higher dividend growth (as I pointed out in the article and valuation analysis) than many other stocks with higher yields. So you just really have to figure out for yourself how to best balance current yield with growth of that yield over the long term. I have potentially 40 or 50 years to think about when living off of dividend income, so it behooves me to think about sustainable, growing dividend income over a very long period of time. Stocks with a higher yield will allow me to live off of my dividend income faster, but if those dividends are at all questionable, that could be a problem down the road. In addition, I’ve already maxed myself out on a lot of high-quality stocks, which I’ve discussed before. If I were starting out again, I might not be buying a DIS (which is actually something I regret now looking back on it). I’d be buying a lot of stocks in that 3% to 4% range that have lengthy dividend growth track records, like KO, JNJ, PM, etc. But, again, I’ve already maxed myself out there.

    I talked a little about different stocks in terms of yield and growth here:

    https://www.dividendmantra.com/2014/06/a-multistage-rocket-model-for-a-dividend-growth-stock-portfolio/

    Hope that helps.

    Best regards.

  56. AJ,

    Nice moves there. I’m likely going to continue building out a position in UTX as we move forward. I don’t see it as a massive position in the portfolio, but I could certainly see doubling down on it here in the near future.

    I don’t really have an opinion on QCOM. But DOV is a great stock. Not a ton of growth there, but one of the lengthiest dividend growth track records around. And the business model is really interesting in terms of how diversified it is. Reminds me a little bit of ITW, though without the unique corporate structure.

    Keep it up!

    Cheers.

  57. Cape,

    Thanks for dropping by. Glad to see you from SA! 🙂

    All is well over here. Really well. I can only hope the same for you.

    I hear you there on BBL. I’ve gone a little heavier there than I ever planned on, but I’d be tempted to maybe grab one more tranche at $30. We hear all the time about how irrational the market can be, but it’s so crazy and fun to see it in real-time. Never know what you’re going to get, so you just have to be ready for those opportunities.

    Stay in touch!

    Best regards.

  58. John,

    We’ll see. BBL’s financials are still in pretty good shape from what I saw on the last financial report. BP, on the other hand, has been struggling for a while now. Shell also. There could be some difficulties there.

    Cheers.

  59. Ryan,

    Happy to be a fellow shareholder with you on this one. Not the greatest yield in the world, but that’s what I have the REITs and pipeline stocks for. I have plenty of time to allow DIS to pump out growing dividends for decades to come. 🙂

    Cheers!

  60. incomerookie,

    Yeah, you just never can tell with the market. Record quarterly profit and the stock takes it on the chin. Just one more reason I love being a long-term investor. Brings clarity to the chaos. 🙂

    Thanks for stopping by!

    Best regards.

  61. Nice buy Jason. I already had a decent about of DIS. But I added more recently at $111.65, $110.90, $109.99 and $105.86. Yes I got a bit greedy 🙂 DIS has now passed AAPL and PM as my largest position. Good luck and Happy investing to all of us.

  62. Rob,

    Nice. Nothing wrong with being greedy at all. 🙂

    DIS is really one of the best businesses in the entire world, in my opinion. Almost every company I invest in has some serious headwinds that concern me, but DIS doesn’t really have any. Changes in content consumption is about it, but content/programming remains as valuable and popular as ever.

    Glad to be a fellow shareholder alongside you. Very excited about the next five years with everything they’ve got going on.

    Best wishes.

  63. Great Buy Jason, more cash from more cash flow!!! and I like it very much.

    I asked my readers in my blod If I should sell my ETF’s and go with stocks,and after the drop in prices today i might change my watch list 🙂

  64. Sharon,

    Definitely. Cash is really nice. But growing cash flow that replenishes itself is much better. 🙂

    Best of luck if you make that transition over there. Make sure you’re comfortable with what you’re doing, either way.

    Cheers!

  65. Love Disney and wish I had more capital to get some, but I’m watching the market slip a bit and think there will be more buying opportunities soon. I also want to save up some for what I think is going to happen to REITs with the FED planing on raising rates. Probably will give a hold until September so that I can see if they will and if the market will have a taper tantrum. I think Disney and Star Wars will be their next cash cow like Marvel, definitely looking to buy, just not yet.

  66. DD,

    Man, I’m sure hoping the REITs fall heavily here at some point soon. I’ve got some room for OHI and O, but would love to see some better prices. OHI is in my wheelhouse right now, so I’ll probably add some pretty soon. But would love to see O come down some. If REITs fall significantly across the board, I may even add something new to the mix. We’ll see!

    Cheers.

  67. DM,

    Dont you think the anticipated rate increase by the FED is already priced into REITs, given the big sell-off over the past couple of months?

    Cheers,

  68. Hi Jason,

    Love your purchase. I just pulled out all the pocket lint and bought 50 shares at $101 per share. I hope this is the start of a much greater accumulation but I will need time for the capital to build up again. Disney has been on my radar but I’ve been shy to pull the trigger based on the low yield. Funny how that didn’t bother me much when I picked up Visa around $50 per share but I had more capital to part with back then.

    -Mike

  69. Know you’re asking DM, but people behave irrationally when things actually happen. Not sure if this will be the case this time, but I think it’s partially baked into the prices now.

  70. “As it sits, I’m very happy with this position. But I would absolutely be open to increasing it once more if the price drops closer to $100 over the short term.”

    Well, here we are at an almost unexplainable $101.24 at the time of typing this, down almost 5%. Are you considering increasing your position?

    I commented about a month back explaining I am starting my journey in a similar place as you when you started. 26, starting with $5000. My Portfolio now sits at $7500, adding since then 30 shares of KMI at $33.32, 13 shares of CAT at $76.59 and 49 shares of TWO at $9.94. I can think that summer weekend bartending job for some extra income to toss into my Portofilo and your blog for guidance.

    Always look forward to your posts.

    -TJ

  71. Like the buy. I think DIS is being lumped in with other media companies in the decline today despite having much more in the pipeline. Theme parks, SW and Frozen (both with their own revenue streams), college football playoffs ect..I could go on. DIS could break $100 today. I would welcome it and add more.

  72. Hi Duncan’s Dividend’s,

    Always welcome to join in on the discussion! 🙂
    I completely agree with you, although when looking at the drop REITs like O and WPC experienced in the past half year – I wonder if a rate hike will really cause that much of an additional drop.

  73. I just initiated 30 DIS stocks @ $100.8. I hope it goes down so I can have my full position. I would like to add 90 stocks more between $90 to $95 if it gets there.

  74. Rob,

    Right. Tough to say. A lot of REITs are down quite a bit over the last year and YTD. Others aren’t. O is actually up pretty healthily over the last year, and also up YTD. As always, it’s a market of stocks rather than a stock market, so to lump all REITs together and say they’ll react a certain way when rates go a certain way would be foolish, in my view.

    But you really can’t predict the market. I think some of the REITs are in my wheelhouse right now as it sits, like I mentioned. But that doesn’t keep me from hoping for further slides, especially there on O. 🙂

    Cheers!

  75. Mike,

    Man, I wish my pocket lint looked like yours! 🙂

    Sitting here at $100, I don’t see how Disney is expensive any longer. At $120, before the recent report, it was up there. But after record quarterly profit and a drop to $100, I’m not sure how you don’t like that.

    Glad to be a fellow shareholder. I’m pretty confident we’ll do well here.

    Best regards.

  76. TJ,

    Congrats on growing your portfolio over there. It’s amazing how fast things can come along when you put your mind to it and work hard. What once was thought to be impossible becomes quite possible over time.

    As far as Disney goes, I’m definitely thinking of adding to my position. But keep in mind my capital isn’t unlimited. I’ve had a few readers over the last few days ask if I was going to buy more DIS, UNP, OKE, WMT, EMR, and a few other stocks. If I had money to buy all of these stocks whenever they dip a little bit, I’d already be financially independent. Gotta play the long game. I might have enough capital for one more buy, but it’d be a stretch. DIS and UNP both look pretty appealing to me today after their respective drops of late. UNP is trading below my cost basis. DIS isn’t.

    Keep it up over there. One dollar at a time! 🙂

    Cheers.

  77. RK,

    Agreed. ESPN is still mightily important to the firm, but DIS is a lot more than just programming. And I think over time that’ll become even more apparent. They’ve got something like 5 Star Wars movies coming out over the next five years, new parks and new park additions, more high-profile movies, and more product tie-ins. Very exciting stretch ahead. 🙂

    Cheers!

  78. AJ,

    Glad to be a fellow shareholder with you here. Like I mentioned elsewhere, DIS wasn’t particularly appealing at $120 before the quarterly report. But after a killer report and a drop to $100, the stock is pretty compelling now. Might have enough capital for one more stretch buy this month. I like both DIS and UNP right now, so we’ll see.

    Best regards!

  79. Jason, you’re getting a bad beat on this one, then again so am I. The hard part for me is that feeling in my gut even though I have seen plenty of data that states that in most cases consistent buying rather than trying to time the market is the best approach.

  80. gottodo1,

    Well, I’m not particularly interested in seeing any stock I buy rise in price immediately afterward. As long as I’m accumulating, I’d rather see it drop. So I’m pretty happy about Disney’s recent price action. It’s trading around my cost basis now, so I’d love to see it drop back in the $90s. That might give me a chance to lower that basis a little bit on a great company.

    As far as timing the market goes, it’s not possible or necessary. Buy high-quality when the value is there and hold for the long haul. It’s such a simple recipe for success. 🙂

    Cheers!

  81. Really enjoy reading your stuff. Question on your thinking of COP. Recently raised it’s dividend 1 cent but I’m worried that if oil stays down at these levels, they are going to eventually have to cut it. They need oil to be at least at 60 to be cash flow neutral. Taking on a lot of debt to finance the dividend. My thinking is I can put the money I have invested in COP to better work somewhere else and buy back in if oil stabilizes or goes up. My thinking is there is more downside pain and if the dividend is cut, the stock would be in free fall. Currently sitting on a 25% loss. Thoughts?

  82. Nate,

    I can’t give stock advice, unfortunately. That’s really up to you to decide.

    The only thing I can say is to think about why you bought the stock in the first place. What was the thesis? Has the thesis changed to the point to where you’re no longer comfortable owning equity in the company for the long term? If the answer to that question is yes, then maybe it’s the right time to exit.

    That said, I’d think carefully in the future about whether or not you really should be investing in major oil & gas companies in the future. If the volatility (both in terms of operational results and stock prices) makes you uncomfortable, it might make sense to avoid those stocks.

    Cheers!

  83. I feel more secure in CVX, XOM and KMI. Issue is I’m overweight energy and see other opportunities out there for the money invested in COP. Don’t have much available free cash and have my eye on more Apple or starting positions in GILD and Disney

  84. Nate,

    I hear you. I’m overweight in that area as well. I’m personally more comfortable with COP because I bought in really cheap before the PSX spin-off. Fortunate timing is all that was. Its fundamentals were much more solid back then. It was also a very different company, being integrated and all. A dividend cut might not be the worst thing in the world for them, as not rebasing the dividend after losing a significant chunk of the company may not be a sustainable long-term call.

    Happy shopping over there!

    Cheers.

  85. Hi Jason!

    I have been following you since Juli 2014. You really inspired me with this frugal living and dividend investing. In the beginning of 2014 I had different strategies like technical analysis and buying on the earnings season. None of them work! I’m glad I found your blog. Since July 2014 I have been heavily investing in dividend stocks. I’m 21 years old, so I hope I will be financial independent on the age 40. The only thing I am struggling with is that I do not earn a lot of money to invest in dividend stocks. I do only have a simple job at an insurance company. I am looking forward to earn money when I’m graduated. After a year I have started my own dutch blog about dividend investing for all the dutch people in my country. I hope I could inspire them so much as you inspired me.

    Best regards,

    Maurice

  86. Maurice,

    Thanks so much for stopping by and sharing that. Really appreciate it.

    I’m so fortunate to be in this position where I’ve been able to inspire so many people. It’s really a dream come true for me. It’s been my belief all along that financial independence is absolutely attainable for most anyone that really wants it. Living in a first world country helps a lot. As does not having any health issues. But the majority of us have a good crack at this thing.

    You’re only 21, so you have a huge advantage. That gives you almost 20 years to achieve financial independence. You’ll very likely earn more money as you go along in your career – you’re just starting out now. So be patient, but be relentless. You’ll get there if you keep at it. 🙂

    Best of luck with the blog!

    Cheers.

  87. Jason

    there is a somewhat different aspect to Disney, that may not have anything to do with the DIS stock, but very well aligns with dividend growth investment: Disney’s (also the company’s) motto is “dream, believe, dare, do!”. I think this very much pictures what it takes to enbark on a dividend growth investor journey. First you need to come to the point where you dream of financial independence. Once there, you need to get to the point where you start to believe that this can actually be achieved. But to really get things going, you need to dare all the things that hold you back from striving for FI, and finally you need to start to do things that get you to FI, meaning saving AND investing.

    Many of the great movies that bring home all that dividend for DIS shareholders do nothing more than spread this message: the main character has a dream that appears hard or impossible to achieve. Then the character starts to believe, dares all the hurdles, faith and what not, and starts doing what is needed to make the dream come true.

    This is somehow similar to your motivation to inspire others on FI, and even better, owning the DIS share enables this message to be systematically spread to children all over (although Disney’s message about the power of dreams is not nearly as specific as your message).

    I have handed (with and for my children) a lot of cash over to Disney and hope to join one day soon as a shareholder.

    Philipp

  88. Maurice

    You inspire me. Don’t worry that you don’t earn much now. Be honest and hard working, you’ll get there. All the very best in your life!

  89. Philipp,

    Appreciate you sharing that!

    Gotta love the message. Maybe I watched too many Disney movies when I was a kid, but I’ve developed a deep belief of dreaming a dream and then making it come true. Thanks, Disney. 🙂

    Let’s hope they inspire a whole new generation of children.

    Best regards!

  90. Josh,

    Absolutely. If it stays around this $100 level, I’d be interested in buying more in September. It’s around my cost basis now, so it wouldn’t really be averaging down. I’m hoping it drops to $90 or so. We’ll see!

    Cheers.

  91. beers119,

    Glad to be a fellow shareholder with you in DIS. I might add some more to my portfolio next month. We’ll see. It’s a full position now, and another 10 shares would probably put it in a spot where it’s about as large as I’ll go with that low yield and all.

    Keep scoring those high-quality stocks over there!

    Take care.

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