Amusement Parks Are Serious Business

 | Mar 11, 2014 | 6:12 PM EDT  | Comments
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six

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dis

Sometimes you have these quiet moves in stocks that aren't on anyone's radar screens. They aren't battlegrounds, they aren't sources of contention. They just methodically, year after year, generate excellent returns.

Such is the case with Cedar Fair (FUN) and Six Flags (SIX), two amusement park operators that exemplify one of my favorite themes in Get Rich Carefully, what I call "the new frugality." The scars of the Great Recession run deep -- deeper, I believe, than many of us want to admit -- and people now seek bargains that are similar to what our parents or grandparents or even great grandparents sought after the Great Depression.

The idea of amusement park stocks as big winners seems a little fanciful. They are unimportant equities to most. They are not Tesla Motors (TSLA), not Netflix (NFLX), major tugs-of-war with brilliant people on both sides of the stock. They don't make fuel cells like Ballard Power (BLDP) or Plug Power (PLUG). You won't find any 3D printers among this group. No hedge fund manager is going to get short them and then start a campaign against them to drive them down and profit from the destruction they may have wrought.

These companies simply manage properties that are relatively inexpensive destinations where you can have a real good time, perfect for newly frugal people who don't feel like going in hock over a vacation, after what they went through not that long ago.

Amusement parks such as Six Flags or Cedar Fair, which you may know as Dorney Park or Kings Dominion or WildWater kingdom, are the ideal family vacation destinations, and these two operators keep them fresh with new rides fairly regularly, taking advantage of the wonders of technology. Those new features keep people coming back over and over again, year after year.

While we focus intensely on how Disney's (DIS) theme parks do, how much Disney is charging and how big the gate is, the moves these smaller companies make mean absolutely nothing to most investors out there.

I have been a big fan of these stocks ever since the Great Recession, in part because these companies are so committed to their shareholders. They spew cash, and they return as much as prudently possible to those who own them. I think that's a chief reason why Cedar Fair has gone from $7 five years ago to $50 now, and yet even after that remarkable move, it still yields 5.3%. Six Flags is no slouch either, yielding 4.4% after a terrific run.

Six Flags is the largest regional theme park operator on earth, with 19 theme parks, water parks and zoological parks across the country. Cedar Fair is a close second with 11 amusement parks, seven water parks and five hotels.

These companies raise their dividends pretty much each time they open new rides. They have little competition, because it's so difficult for any new operator to cobble together the real estate needed and get the insurance that's necessary to even open a new park.

I always preach diversification. I never want you in all cloud stocks, or all oils, or all biotechs. That's just too risky. Stocks such as Cedar Fair and Six Flags aren't roller coasters. Best of all, they leave the thrills and the excitement to their parks, not to your portfolio.

Random musings: Thanks to my colleague Matt Horween for first bringing Cedar Fair to my attention as a terrific company. Great call! 

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