When income investors look for dividend stocks to buy, dividend safety is paramount (and for good reason). There are few worse outcomes for income investors than buying a stock that cuts or suspends its dividend. But in some cases, a dividend cut or suspension is a temporary setback, that paves the way for a better future.

The Walt Disney Company (DIS) is an example of a growth stock with a shaky dividend track record in recent months, but a long runway of growth potential up ahead.

Disney suspended its dividend payout last year in the midst of the coronavirus pandemic, which could be a major deterrent for income investors. But long-term investors should remember that the coronavirus pandemic is a short-term challenge. Over the long-term, Disney has a bright future.

Overview & Recent Events

The Walt Disney Company is a diversified entertainment conglomerate that operates in different industries, including media networks (primarily ABC and ESPN), parks & resorts (with assets such as Disneyland and Disneyworld), studio entertainment (including Disney Animation, Pixar, Marvel, Lucasfilm, and 20^th Century Fox) and merchandise.   The company is heralded by Motley Fool as one of their exemplarily performing long-term picks.

On February 11th, 2021 Disney reported Q1 fiscal year 2021 results for the period ending January 2nd, 2021. (Disney’s fiscal year ends the Saturday closest to September 30th.) For the quarter Disney generated revenue of $16.25 billion, representing a decline of 22% compared to the same quarter last year.

The Disney Media and Entertainment Distribution segment, making up ~78% of sales, was down -4.7% compared to Q1 2020. The Direct-to-Consumer portion of the business buoyed the top line to some degree with 73% year-over-year revenue growth, which includes 94.9 million paid Disney+ subscribers compared to 26.5 million a year ago.

However, the Disney Parks, Experiences, and Products segment was down -52.7% as the COVID-19 pandemic continues to weigh heavily on results. Reported net income equaled $17 million or $0.02 per share compared to $2.11 billion or $1.17 per share in Q1 2020. On an adjusted basis, earnings-per-share equaled $0.32 compared to $1.53 in the year-ago period.

Why Disney’s Dividend Suspension Was A Short-Term Setback

There is no doubt that Disney was negatively impacted by the coronavirus pandemic over the past year, which forced the company to close down its parks and resorts for an extended period. As a result, on November 12th, 2020 Disney announced it would forgo its next semi-annual dividend payment to shareholders.

While a dividend suspension is never good news for investors, there is an important context that investors should keep in mind. As a cyclical and economically sensitive company, Disney was significant affected by the coronavirus pandemic. But once the pandemic eventually ends, Disney should bounce back just as quickly simply due to pent-up demand.

Another important consideration is that Disney has high investment demands right now, as the company rolls out its Disney+ streaming service which is a key strategic imperative. Disney’s biggest growth initiative going forward is the launch of the Disney+ streaming service, which is a stand-alone service that can also be bundled with their ESPN+ streaming service and Hulu. The dividend suspension helped free up valuable financial resources that the company needs to invest in its strategic growth initiatives, such as Disney+.

Final Thoughts

As a result, investors should keep a long-term focus when it comes to Disney. It is likely the company will return to paying its dividend later this year, as long as the global economy continues to recover from the coronavirus pandemic. And over the long-term, Disney is likely to return to being a strong dividend growth stock, as it was before the pandemic. Therefore, dividend growth investors should consider Disney to be a long-term dividend growth stock, even though the company has temporarily suspended its dividend.