Walt Disney: Dividend Vs. Debt Analysis

| About: The Walt (DIS)

The Mouse

I hope we never lose sight of one thing: it was all started by a mouse. - Walt Disney (October 1954)

Walt Disney Company (NYSE:DIS) stock is up 50 percent since last October's 52 week low of 29.00 dollars a share. The company reports earnings Tuesday, May 8th 2012.

One concern is Disney spent 250 million making John Carter and the film just barely broke even. Though articles like 'John Carter': Despite Losses Its Impact on the Walt Disney Co. Likely Limited make a favorable case.

Dividend vs. Debt

Walt Disney Co. stock has a 0.60 cent per share (1.4%) dividend that is paid once a year. The company announded a dividend increase last year.

Here is a strategy to create a greater yield centered around Walt Disney's stock, dividend and debt.

Stocks Shares Price Dividend 5 Years
Walt Disney Co. 10 43.81 0.60 30
Intel Corporation (NASDAQ:INTC) 10 28.56 0.84 42
Income Funds
Nuveen Equity Premium Income (JPZ) 10 11.95 1.08 54
Bonds Yield
Walt Disney Company 4.125% 12/01/2041 (CUSIP 25468PCR5) 2 102.23 3.996% 412.5
US Treasury
US Treasury SEC STRIPPED PMT 0.00000% 2/15/2035 1 48.17 3.232% 0

*Note: US Treasuries are sold in units. 1 unit priced at 48.17 costs 481.70 dollars.

This totals 3,363 dollars (plus 40 dollars commission.) There may be a better opportunity to buy Disney stock this summer as the market contines to fluctuate. However this strategy is about getting the company for a longer term, notice the bond should pay for the stock in 5 years.

In this example let's set Disney and Intel's dividends to reinvest and Nuveen's dividend to pay cash. Though investors hope stocks in excellent companies will rise it is not a given. In this case Disney has gone up considerably in the past 7 months.

Walt Disney Co.

Disney has stood the test of time. Their newest film Avengers appears poised to make up for John Carter. We will see if overall quarterly revenue was affected in May 8th's earnings statement.

Disney has 78.5 billion market cap., 3.7 billion cash on hand and 14.39 billion in debt.

Intel Corporation

Intel makes processors that are used to power America. Intel also has worked to power Disney's Pixar Animation studio.

Intel has 142.7 billion market cap., 13.7 billion cash on hand and 7.4 billion in debt.

Income Funds
Nuveen Equity Premium Income

With a 9% dividend Nuveen Equity Income provides an opportunity to raise the overall yield of this layered position. Nuveen has a quarterly distribution of 0.27 cents per share. This Close Ended Fund trades at an 11% discount to NAV.

Nuveen Equity Premium Income holds 112,686 shares of Disney.

Walt Disney Company 4.125% 12/01/2041 Disney issued these 30 year bonds in 2011 at historically low rates. The original size of the offering was 600 million dollars. They are rated A2/A.
US Treasuries
US Treasury SEC STRIPPED PMT 0.00000% 2/15/2035 Add a small position in US Treasuries to balance the portfolio. The 2035 Zero Coupon is priced perfectly for this strategy.

Income Calculations

Lets look at a basic chart for income produced when the bonds mature in 2041. Let's say you use the income to pick up another couple US Treasuries down the line.:

Stocks Shares Dividend Years Total
Walt Disney Co. 10 0.60 29 174
Intel 10 0.84 29 244
Income Funds
Nuveen Equity Income Fund 10 1.08 29 313
Walt Disney Company 4.125% 12/01/2041 2 41.25 29 2393 (minus 1,300 to buy new Treasuries) = 1,093
US Treasuries
US Treasury SEC STRIPPED PMT 0.00000% 2/15/2035 1 3.232% 29 520
*US Treasury 0.00000% 2/15/2040 1 3.03% 22 400
*US Treasury 0.00000% 2/15/2041 1 3.03% 14 300
total bonds: 5 total: 3,044 (3.12% yield)

Note: This does not account for reinvested dividends since future prices can not be calculated.

This is a conservative estimation. The stocks can gain, or split or spin off, though conversely stocks can experience hard times. Notice the new US Treasuries that you should be able to purchase around 2019 and 2027. (For the sake of the example conservatively they are 600 dollars and 700 dollars for the newest one.)

The Corporate Bonds should return your original 2,000 dollars and the Treasuries should mature and return about 1,780 dollars (480 + 600 + 700). So adding 2,000 +1,780 + 3,044 = 6,824 total. Plus you should still have shares of some great American companies.

Disclosure: I am long DIS, INTC, JPZ.