The Walt Disney Co. (NYSE: DIS) headquarters may not feel so magical these days, as the company is dealing with activist investors who want change.
Nelson Peltz, a well-known activist investor whose Trian Fund Management holds a $2.5 billion stake in Disney, pushed for the dividend to be reinstated. On November 30, the company announced that was indeed happening.
However, Disney CEO Bob Iger had previously said it was his goal to begin shareholder payouts before the end of the year. In the company’s first-quarter conference call in February, he said, “While initially, it will be a modest dividend, we hope to build upon it over time.”
The Disney dividend will be 30 cents a share for the second half of this year, payable on January 10 to shareholders of record as of December 11.
Disney paused its dividend payments in the spring of 2020, as movie theaters, theme parks and cruises were shut down.
The stock didn’t get any kind of boost from the dividend announcement, with Disney shares down 1.85% in the past five days.
Peltz critical of Disney's succession plan
While the dividend reinstatement is a move that Peltz was pushing for, he’s not done yet. Peltz has been critical of Disney’s succession planning, and of its strategy in its streaming video business.
On December 5, another activist investor, Ancora, sent a letter to Disney shareholders encouraging them to vote Peltz into a board seat.
Ancora minced no words in its letter.
“A degree of shareholder-driven change is certainly warranted in Disney’s boardroom following an extended period of absentminded governance, ineffective succession planning, polarizing actions and sustained value destruction,” it began.
Ancora noted that “Disney shareholders have incurred meaningful losses and the Company has dramatically underperformed the S&P 500 Media & Entertainment Index over various periods, including one-year, three-year and five-year horizons.”
Bearish trend since March 2021
A glance at MarketBeat’s Disney chart shows the stock in a downward bearish trend since March 2021. Earnings and revenue grew in late 2020 thanks to growth in streaming, which propelled the stock to a high of $203.02 in March of 2021.
But after that, the case for endless growth in streaming began to fall apart. Not just Disney, but companies such as Netflix Inc. (NASDAQ: NFLX) were punished as more competitors entered the market, resulting in subscriber fatigue.
The streamers were also paying more for content, resulting in higher fees for consumers, who balked at the upcharges when seemingly everything was costing more.
That malaise has hit several entertainment stocks, although many have rallied along with the broad market recently, with Paramount Global (NASDAQ: PARA) being the biggest five-day price mover in the Communication Services Select Sector SPDR Fund (NYSEARCA; XLC).
On December 6, Disney announced a change to its streaming offerings, adding Hulu to its Disney+ service. That will increase the content offerings for Disney+ subscribers. The new package, dubbed "Hulu on Disney+", is being rolled out in a beta version to U.S. subscribers.
Will Disney split up?
Investors have been pushing for the company to split, with the core brand retaining theme parks, movie studios, Disney+ and other properties, while selling off TV assets such as the ABC Television Network, company-owned ABC TV stations, ESPN and FX.
Ancora pointed out other problems in its letter.
“The Board’s stewardship issues have not only resulted in financial setbacks. By allowing Disney to devote shareholders’ resources to a number of politicized initiatives, the Board has overseen a deterioration of what was once the most unifying brand in the world,” it said.
It added that it believes the company “is increasingly dividing – rather than delighting – a growing number of consumers,” noting that a recent Axios Harris Poll 100 revealed that Disney is now the fifth most polarizing brand in the world.
Analysts see earnings growth ahead
MarketBeat’s Disney analyst forecasts show a consensus view of “moderate buy,” with a price target of $108.95, an upside of 18.46%.
Wall Street expects Disney to earn $4.33 per share this year, an increase of 16%. That’s expected to grow by another 20% next year to $5.27 per share. That’s trending in the right direction, but even 2024 earnings would remain below 2019’s $5.76 per share.