We got more clarity from Disney’s management about when they’ll start paying a dividend again and repurchasing shares during the Q3 2021 Earnings Call.
And finally, in light of the ongoing recovery from the COVID-19 pandemic as well as our continued prioritization of investments that support our growth initiatives, the Board decided not to declare or pay a dividend for the first half of fiscal 2021.
Longer-term, we do anticipate that both dividends and share repurchases will remain a part of our capital allocation strategy. However, for the time being, we don’t anticipate declaring a dividend or repurchasing shares until we return to a more normalized operating environment and our leverage is back to levels more consistent with a single A credit rating. [emphasis added]
It looks like S&P Global Ratings wants to see Disney’s leverage ratio below 3 before upgrading them back to A-.
S&P Global Ratings no longer expects that Disney will reduce adjusted leverage to below 3x by the end of fiscal 2022, due to the company rolling out its global direct-to-consumer streaming platforms and investing in new content, which will depress operating and cash flow measures for the next few years.
The leverage ratio is usually defined as Total Debt/EBITDA.
Sentieo reports Disney’s trailing twelve month EBITDA as $7,786 million and Disney’s recently filed balance sheet is below.
Adding “Current portion of borrowings” with “Borrowings” creates a Total Debt/EBITDA ratio of 7.17x.
I’m going to leave “Other long-term liabilities” out of the equation. It’s a mix of operating and finance leases plus a debt service obligation for an Anaheim municipal bond. Leaving out this section simplifies things and this creates a lower leverage ratio to helps us estimate the quickest Disney could lower its leverage ratio below 3x.
Coronavirus is the big variable here. The biggest drag on Disney’s EBITDA right now is its Theme Parks division. The sooner coronavirus gets under control and the more comfortable people are with traveling and being in crowds the quicker its Theme Park division bounces back and the quicker Disney’s EBITDA bounces back. Estimates for Disney’s EBITDA for the next 12 months are around $15 billion. If that happens then Disney’s Leverage ratio drops to 3.72x assuming its debt doesn’t increase and there are no further disruptions to its Theme Parks division.
Estimates for Disney’s EBITDA in 2 years is around $20 billion for a leverage ratio of 2.79x. Again, assuming debt doesn’t increase and its Theme Parks avoid any further major disruptions.
If the consensus plays out then the quickest Disney will start paying a dividend again is in a year and a half based solely on its leverage ratio.