Editors' Pick: Originally published Feb. 17.
On May 15, 2015 the Dow Jones closed at 18,272. That is it's all time high. Since then, the Dow Jones has fallen by 10% to 16,412.
The VIX Index, often called the "fear index," measures market volatility and is now up. On May 15, 2015 the VIX closed at 12.4. It has nearly doubled since that time. Today the VIX is at 22.9.
What should investors do when fear rises and the stock market falls?
Invest in high quality dividend paying businesses at reduced prices. Warren Buffett knows this well. It is one of the ways he has grown his fortune to over $60 billion.
"Be fearful when others are greedy and greedy when others are fearful"
- Warren Buffett
This article examines 10 high quality dividend growth stocks that have seen their stock price fall 20% or more from highs.
The 10 stocks in this article are the 10 highest ranked stocks using The 8 Rules of Dividend Investing that also have 20% or greater declines off of highs.DIS data by YCharts
10. Disney (DIS)
Founded in 1923, Disney is a gigantic corporation with a very long corporate history. The company has a market cap near $150 billion.
Most giant old corporations don't see rapid growth. Disney is the exception. The company has compounded its earnings-per-share at 18.8% a year over the last five years. To put that into perspective, Google grew earnings-per-share (EPS) at 15.4% a year over the same time period.
Disney has grown faster than Google over the last five years. With that type of growth, you would expect Disney to have a high price-to-earnings ratio. After all, Google has a price-to-earnings ratio of 28.7. Disney has a price-to-earnings ratio of just 17. The company saw earnings-per-share grow 28% in its most recent quarter.
Disney's stock price has declined 24% from highs reached in November of 2015. The company's decline is being driven by declining income from ESPN.
Disney's Media Networks segment as a whole saw operating income decline 6% versus the same quarter a year ago. The Media Networks segment is responsible for 33% of Disney's operating income.
The Media Networks segment will likely slowly decline as viewers continue to move away from cable and toward online streaming options. This is a medium-term trend.
In the long-run Disney's prospects are very favorable. The core of the company's competitive advantage is its phenomenal intellectual property. Disney owns Marvel (X-Men, Avengers), LucasFilm (Star Wars), ESPN, ABC, Pixar, and traditional Disney brands (Mickey Mouse, Frozen, etc.).
The method of content distribution may change from cable television to online streaming. What won't change is people's willingness to pay for the brands, shows, and characters they love.
We live in a period of increased content consumption. Disney is one of the best content creators on the planet. The company's long-term prospects remain bright. Now is an excellent time to buy shares of Disney at a discount.