Johnson's Roni Michaely talks to MarketWatch about Disney's dividend

12/1/2011 2:55:00 PM

Michaely says that the move to increase their dividend lowers the likelihood that Disney’s earnings will decrease in coming years.

Excerpts from "A Very Bullish Development" (MarketWatch, Dec. 1)

By Mark Hulbert

The most bullish thing the market can do, according to the age-old saying, is to go up.

And according to that standard, at least, Wednesday’s market action was very bullish indeed — with the major market averages rising by more than 4%.

But there was another very bullish development on Wednesday that was largely overlooked in all the attention being paid to the overall market: Disney hiked its annual dividend from 40 cents to 60 cents a share. MORE

For insight, I turned to Roni Michaely,
Roni Michaely
a finance professor at Cornell University’s Johnson Graduate School of Management. Michaely is one of academia’s leading experts on what corporate management is signalling through dividend increases.

In an interview Wednesday afternoon, Michaely told me that, based on his extensive research into past dividend increases, Disney’s recent dividend hike can be seen as increasing the odds that the company will be able to maintain the heightened level of profitability that it has earned in recent years. Because of that dividend increase, he said, the “likelihood that Disney’s earnings will decrease in coming years is lower than before.”

This doesn’t amount to a guarantee, of course. Michaely hastened to point out that his comments are based on an average of thousands of companies he has analyzed over the years, and that there are plenty of counterexamples of companies that increased dividends only to subsequently fall on hard times. MORE
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