Will investors of Walt Disney (NYSE:DIS) have a “magical” experience in 2023? It’s hard to be confident in DIS stock when Disney is preparing to bring back dividend payments but also intends to reduce its capital outlays. Plus, Disney is losing subscribers for its streaming service and appears to have a cash-burn problem.
Generations of income-focused investors counted on Disney to deliver value to its shareholders. Then, the Covid-19 pandemic dealt a blow to the company’s theme-park business.
Consequently, Disney has shifted some of its focus to its Disney+ streaming business. Additionally, the company has suspended its dividend for the past several years. That could change later this year, but the bigger picture doesn’t necessarily look bright for Disney.
Disney Tries Out Fire-and-Yield Playbook
There’s an interesting, and possibly unsettling, phenomenon happening on Wall Street lately. A Barron’s article refers to it as the “playbook” of firing workers and focusing on paying dividends. It seems, for better or for worse, that Disney CEO Bob Iger is hellbent on using this playbook in 2023.
This raises a crucial question: Are Disney and Iger really committed to reducing the company’s financial outlays, or not? Iger is ready to cut 7,000 jobs, even though this might effect the theme park and customer-service experience at Disney.
At the same time, Iger revealed Disney’s intention to reinstate the company’s dividend payments by the end of this year. One might question whether this is just a way to bribe prospective investors and whether it makes sense to bring the dividend back when Disney is supposed to be reducing its expenditures.
Cash Burn Doesn’t Bode Well for DIS Stock
Besides, reinstating Disney’s dividend isn’t necessarily justifiable when the company is having financial issues. In particular, investors should consider Disney’s cash burn to be a glaring red flag.
All is not well at the House of Mouse, it seems. Concerns have been raised about Disney’s insensitively high theme-park admission and perks prices as families struggle in this challenging economy. Meanwhile, on the streaming side of the equation, Disney lost approximately 2.4 million Disney+ subscribers during 2023’s first fiscal quarter (161.8 million subscribers versus 164.2 in the prior quarter).
Moreover, it’s probably not a great idea for Disney to consider reinstating dividend payouts when the company’s capital position is suboptimal. From the quarter ended Jan. 1, 2022, to the quarter ended Dec. 31, 2022, Disney’s cash used in continuing operations decreased from -$209 million to -$974 million. In addition, during that same time frame, Disney’s free cash flow declined from -$1.19 billion to -$2.155 billion.
What You Can Do Now
Iger’s intention to reinstate Disney’s dividend doesn’t appear to be justified by the company’s capital position. Prospective shareholders might also question whether Disney’s fire-and-yield combo reflects a consistent commitment to cost reduction.
In other words, you don’t have to let Iger’s yield-resumption tease entice you into buying Disney shares now. DIS stock could get a higher grade if conditions change, but for the time being, it gets a “D” as eager investors should consider waiting on the sidelines for now.
On the date of publication, Louis Navellier had a long position in DIS. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.
The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.