Better Buy: Disney vs. Time Warner

Dumbo Flying Elephant ride at Disney lit up at night

There was a battle at the box office over the weekend between Disney (NYSE: DIS) and AT&T 's (NYSE: T) recently acquired Time Warner. Mary Poppins Returns squared off against Aquaman for their debut weekends at the corner multiplex. The water-ruling superhero beat the whimsical umbrella-floating nanny.

It wasn't even close. Aquaman rang up $67.4 million in domestic ticket sales over the weekend, more than tripling the $22.2 million in box office receipts for Mary Poppins Return . One weekend naturally doesn't dictate the better company. Disney's had far bigger opening weekends this year for its superhero-fueled Avengers: Infinity War , Black Panther , and Incredibles 2 . A winning weekend also doesn't make one stock a better investment than the other. Let's size up Disney and AT&T to see which one belongs in your portfolio.

Making the right call

Choosing between the telecom giant and the family entertainment giant isn't easy, and in the interest of full disclosure, I happen to own both. AT&T is an out-of-favor bellwether with a juicy yield. Disney was holding up considerably better ahead of the recent market swoon. They both have their merits as investments at this point, but neither one is perfect.

AT&T has a thriving wireless business that is routinely undermined by defections in other platforms including its landline and satellite television pursuits. The $110 billion deal for Time Warner that closed earlier this year gives it more skin in content and entertainment, but investors aren't buying into the combination. The stock has retreated sharply since peaking two years ago, despite posting positive pro forma revenue growth for the first time since topping out in 2016 in its latest quarter .

Disney is holding up better across its diversified content empire, but it hasn't been exactly perfect. Its theme parks business was the only segment to grow in fiscal 2017, though three of its four main businesses managed to increase their revenue in fiscal 2018. Disney has become a well-oiled machine on the strength of its owned and acquired franchises.

When it comes to valuation, AT&T is the one packing the smaller multiples. It's trading for just eight times next year's projected earnings. Disney is fetching less than 15 times this new fiscal year's bottom-line results, nearly double AT&T's earnings multiple. The good news for Disney is that it's growing faster than AT&T, but then we get to the payouts.

AT&T increased its dividend rate earlier this month, something that it has now done for 35 years in a row. AT&T's yield has ballooned up to a record 7.2%. It's earning more than enough to cover its beefy payout. Disney's yield of 1.7% also falls woefully short.

I concluded that Disney was the better buy of the two when I pitted the two large caps against one another this summer, but this time I'm changing my tune. Disney has the ingredients in place to continue to be a force in family entertainment, but AT&T's low valuation and ridiculous yield won't last. AT&T should outperform Disney as an investment in the year ahead.

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Rick Munarriz owns shares of AT&T and Walt Disney. The Motley Fool owns shares of and recommends Walt Disney. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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