Disney reported 2nd quarter numbers on May 8th. The company reported earnings of $1.50, up 15% from the $1.30 earned in 2016. So is Disney a buy after earnings?
For the first half of the fiscal year, earnings of $3.05 were reported versus the $3.04 earned in the first half of 2016. This represents virtually no growth seen in earnings. Excluding certain items, earnings were up 2% for the six months.
CEO Bob Iger commented on the strength of the studio and parks divisions. He iterated focusing on long term shareholder value. Even the much maligned media networks segment grew revenue 3% year over year. That is the largest revenue segment with nearly $6B in revenue for the quarter though operating income dropped 3%.
ESPN has been the cause of the stock woes over the past 18 months. The decrease in operating income was due to a decrease of revenues at ESPN which was partially offset by increases at the Disney Channels and Freeform.
ESPN saw higher programming costs which was partially offset by affiliate and advertising revenue growth. I think the ESPN situation is overblown, the company is moving that content to many of the streaming services. These headwinds will blow over, in the meantime I want to see if the share price pulls back to an unreasonable level.
I bought more AT&T after receiving my custom stock alert
Shares crossed over the 5% yield mark which made them look compelling
Expecting 7-8% annual total returns from this purchase
40 more shares will bring an additional $78.40 of income based on today’s dividend rate
I’m playing a little catch-up with my portfolio changes. On May 2nd I bought more AT&T after receiving a text alert that it crossed over 5% dividend yield.
AT&T, along with other telecoms I typically view as cash cows to be periodically purchased at an appropriate yield. I could talk about the underlying business growth but this will just be a slow steady eddy type stock. I’m not expecting rapid growth so initial purchase price is paramount.
This is my dividend portfolio update article series. I like to highlight a few facts and figures from the month. I’ll share my income, any portfolio changes, any dividend increases (or cuts) and anything interesting that I feel to talk about.
I received $199 in dividend income during April
I purchased shares of Public Storage as my only portfolio change in April
Four holdings increased their dividend during the month
Enjoyed a lovely week at Disney World
This is a snapshot of my dividend income thus far this year. You can always check my live portfolio here.
On May 4, 2017, a story came out about Spirit Realty having credit issues with some tenants. Shares for Spirit then proceed to drop 20%. In the wake of that, other triple-net lease players fell hard, including Realty Income. This is a textbook example of Custom Stock Alerts.
Realty Income is one of the most beloved REITs – especially given that it bills itself as “The Monthly Dividend Company”. Shares tend to trade at a premium in the REIT space which in turn helps the company maximize money received by issuing shares.
As an existing shareholder, I am always looking to add to holdings when, in my opinion, they are unfairly beaten down. That’s precisely what happened when an unrelated company reported bad earnings.
Custom Stock Alerts
My site, customstockalerts.com helped me out here. I had existing alerts setup for Realty Income, seen here (this is how it looks after the fact, note the 2 inactive alerts).
I have a multitude of alerts setup for the company, proximity to 52 week high or low, daily price movement, dividend yield above 5% and just a rough ballpark of a price I’d be interested in.
This is my journey of how I achieved a perfect PageSpeed score.
Firstly, besides writing here on Dividend Derek, I created and run Custom Stock Alerts (CSA). Being in the IT field, it’s important to continue working on my skill set. CSA was the perfect project for me to try out some new technologies. It’s hosted on Amazon Web Services (AWS) and I use a multitude of their services. I honestly can’t speak highly enough of my experience setting everything up and the documentation available when I needed help (which is still often).
After launching CSA, I started researching how to make my site more visible, how to appear better on Google for SEO, things of that nature like any small business would. I came across PageSpeed Insights and ran my initial test. It wasn’t terrible, it wasn’t great, I think my initial PageSpeed score was in the 60s.
A high PageSpeed score is important for a few reasons, users won’t wait around on a poor performing site and Google understands this. They won’t say just how much, but it appears to play a role in how high you rank on organic searches. Also, to reiterate, being in IT it was something I also wanted to do to learn new things.
I investigate whether General Mills is worth a buy at this time. In the end I conclude it would not be the worst time to buy shares. The company is trading at historical valuations levels of about 19x earnings. I’m hesitant to expect market outperformance at this point, sales are currently declining. Sales would need to shore up before we can expect stellar earnings growth. In addition, the company has $4B in debt coming due in the next few years that will need to be reissued. Based on cash flow after dividend payments, full debt repayment seems unlikely.
Buying now secures about a 3.3% dividend yield, which is much better than what the market is currently providing, just expect some muted dividend growth until sales pick back up. The best time would have been to buy shares a few years ago when the company had been long term out of favor, trading around a multiple of 15 before picking up the past few years. 2016 saw large scale overvaluation which is visible on any stock chart. Again, with shares at a 52 week low, they look reasonable but hardly a steal.
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Q: What is the biggest investment risk you’ve taken, and has it paid off?
A: The biggest investment risk I have taken was investing in a “Canroy” called Harvest Energy Trust (ticker was HTE). It was a small oil and gas trust with both upstream and downstream operations.
It was one of the first stocks I purchased when I started working. This would have been in 2008 during the financial meltdown. I had saved up a little bit of money, exclusive of my 401(NYSE:K) money, and put about 50% of the cash I had into it.
The stock had an extraordinary yield at that time in the mid-teens in 2008. Being a novice investor, this was far too much to pass up. The price was rapidly falling on the stock, and I made subsequent purchases to average down my cost basis. That’s how I ended up with this one small oil player taking up so much of my capital.
The company was bought out in 2009 by Korea National Oil Corporation and I managed a very small capital gain. The whole ordeal did not last very long, less than a year – I actually have trouble tracking down the records from that time frame. I’d have to dig through old paper tax records; the broker I used I have not used in several years.
Now, this was risky for several reasons. Firstly, this one company was a large part of my portfolio. This is something I would never do today. Secondly, it was very much a niche player, a specific oil trust not a large company with decades of a proven track record. Thirdly, my financial understanding was nowhere near what it is today. I suspect if they had not been bought out, they probably would have cut their dividend – it was simply too good to be true.
On the plus side, I did receive several quarters of that high dividend yield, which was taxed at qualified rates. Like I mentioned, I already received a small capital gain – in retrospect, this was probably a bailout that I did not recognize until now. What the experience did also instill in me is a love of dividends. It would not be for several years that I would find my way back into the dividend realm, but the seed was planted. Eight years later, I have a substantially larger and well diversified portfolio of quality dividend payers. In small part, I have to thank Harvest Energy Trust for that.
I’m quite honored that I was asked to do the interview for Seeking Alpha. I love writing, documenting my progress and then sharing that with the community. I hope to be able to do more of these interviews in the future.
Check out my latest article on Seeking Alpha covering Kellogg. The stock is near a 52 week low and offers slow but steady growth. I’ll have 3 other parts covering some other big food names near their 52 week lows also.
I consider it to be a hold and using Custom Stock Alerts I’ll be keeping an eye should the price drop further. The company has a fair amount of debt and sales are currently declining. Through cost savings initiatives the company should be able to drive moderate single digit earnings growth.
Both companies seem attractively priced today for the dividend growth investor. They have total return opportunities as they are being priced below their historical multiple and at a discount to the S&P as a whole. Both companies are able to pay their dividends by cash flow.
Following the analysis, I purchased shares of Verizon after the article and had already owned Target but did not add to my position.