The Walt Disney Company, typically know as Disney, is perhaps one of the most economically sensitive corporations. Almost 100% of their revenue comes from the discretionary spending money of families. No one "needs" to travel to Orlando or Anaheim, pay the $60 - $70 per person admission, then spend additional money on food, beverages and souvenirs, and pay for a hotel room for a couple days. I think we'd all agree this is "want" based spending as opposed to "needs" based spending, and would be the first spending cut if things got tight.
At the end of November, Disney announced they were increasing their dividend payment to shareholders. There was nothing unusual about this announcement as many firms have a long history of increasing dividend payments periodically. In fact, Disney raised its dividend in 2010 by 14 percent. What was attention getting in the recent announcement was the size of the increase – a full 50 percent boost from 40 cents to 60 cents per share on an annual basis.
Now, I'm not highlighting Disney here as a recommendation. In fact, we don't own Disney stock in our clients' portfolios and don't plan on buying it. What is interesting and worth considering here is the fact that a very economically sensitive entertainment company would take such a bold step when the economy is certainly not as robust as any of us would like.
Most companies don't want to ever have to reduce their dividend payment, so they take the decision to raise the payment seriously after considering their view of the future growth of the business. Disney is not alone as scores of other firms ranging from McDonald's to Microsoft have boosted dividend payments significantly in the last year.
It seems a bit hard to fathom that corporate leaders are optimistic if we just consider the negative feelings created by the situation in Europe, our own fiscal issues, and the heating up of the political rhetoric with the presidential election just under 11 months away. But the facts seem to differ from perception and corporate America is going about its business, generating record profits, and sharing those profits with shareholders through an increasing income stream of dividend payments.
Of course, stocks are stocks and the prices of these assets may be volatile. Investors should own equities in their portfolio in a proportion which does not cause too much heartburn when we go through inevitable market corrections. The main message of this article is that perhaps the future isn't quite as bleak as some may have us believe and many corporations are sending that message through their actions of increasing dividends.
Tom Breiter is president of Breiter Capital Management, Inc., an Anna Maria based investment advisor. He can be reached at 778-1900. Some of the investment concepts highlighted in this column may carry the risk of loss of principal, and investors should determine appropriateness for their personal situation before investing. Visit www.breitercapital.com.