Why Is DIS With Its High Cash Flow Yield Not on Your Watchlist?
Here is why we think Walt Disney (DIS) is worth a look
- Cash Yield: Not many stocks offer free cash flow yield of 5.6%, but DIS does
- Fundamentals: 3-Year average revenue growth of 5.3% and operating margin of 11.9% show good fundamentals
- Valuation: At PE of 17.9, this combo of cash yield, revenue growth, and margin could get noticed
- Compared to S&P, you get lower valuation, lower growth, but lower margins
Free Cash Flow Yield refers to free cash flow per share / stock price. Why it matters? If a company produces high amount of cash per share, it can be used to fuel additional revenue growth, or simply paid through dividends or buybacks to shareholders. For quick background, Walt Disney operates worldwide as an entertainment company providing media distribution, theme parks, resorts, and related experiences through its global segments and subsidiaries.
| DIS | S&P Median | |
|---|---|---|
| Sector | Communication Services | – |
| Industry | Movies & Entertainment | – |
| Free Cash Flow Yield | 5.6% | 3.8% |
| Revenue Growth LTM | 5.0% | 5.1% |
| Revenue Growth 3YAVG | 5.3% | 5.3% |
| Operating Margin LTM | 14.8% | 18.6% |
| Operating Margin 3YAVG | 11.9% | 17.8% |
| PE Ratio | 17.9 | 23.8 |
But do these numbers tell the full story? Read Buy or Sell DIS Stock to see if Walt Disney still has an edge that holds up under the hood.
That is one way to look at stocks. Trefis High Quality Portfolio evaluates much more, and is designed to reduce stock-specific risk while giving upside exposure
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The Point? The Market Can Notice, And Reward
Here are some stocks that showed strong cash flow yield in mid 2024, and saw strong returns in the subsequent 12 months
- FFIV gained 70% in a year after showing a 6.9% free cash flow yield
- CSCO had 6.6% yield, and returned 50% in the next 12 months
- PM rose over 85% percent as the market noticed its 5.7% free cash flow yield and good underlying revenue growth
But Consider The Risk
That said, Disney isn’t immune to big drops. It fell over 60% during the Dot-Com Bubble and pulled back about 56% in the Global Financial Crisis. The inflation shock last year hit it nearly as hard, with a 61% dip. Even the Covid sell-off caused a 42% drop, while the 2018 correction saw a more modest 16% loss. Solid fundamentals matter, but when the market turns, Disney can still take a serious hit.
But the risk is not limited to major market crashes. Stocks fall even when markets are good – think events like earnings, business updates, outlook changes. Read DIS Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.
Picking winners on a consistent basis is not an easy task – especially given the volatility associated with a single stock. Instead, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming the S&P 500 over the last 4-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.