You may not want your portfolio lurching up and down, but guests at theme parks certainly enjoy the roller coasters and other park attractions. From SeaWorld to Walt Disney World and from Cedar Point to Six Flags, several MoneyShow.com contributors highlight their top picks among operators of amusement parks and entertainment centers.
Based in Sandusky, Ohio, and founded in 1983, Cedar Fair (FUN) owns and operates amusement parks, water parks and hotels in the United States and Canada. As of May 2018, the company operated 13 parks, as well as two hotels and three campgrounds adjacent to the company's park locations.
The company's portfolio of amusement parks includes Cedar Point in Sandusky, Ohio; Knott's Berry Farm near Los Angeles, California; Dorney Park & Wildwater Kingdom in Allentown, Pennsylvania; and Kings Dominion near Richmond, Virginia.
While the share price Cedar Fair managed to recover nearly completely after a wild roller coaster ride over the past 12 months, the company continued raising dividend distribution to its shareholders, which currently yields 5.5%.
After an initial plunge of nearly 15%, the company's share price went through several ups and downs over the past year but managed to close the trailing 12 months just 8% away from its starting price.
However, the company's dividend distribution rose for the eighth consecutive year and the current dividend yield outperforms its peers in the entertainment segment of the services sector.
Unlike the volatile share price, the company's dividend continued its ascent with an eighth consecutive annual dividend hike. Cedar Fair's current $0.89 quarterly dividend is 4.1% above the $0.855 quarterly distribution from the same period last year. The current quarterly payout corresponds to a $3.56 annualized amount and yields 5.5%, which is nearly 7% above the company's own 5.1% average dividend yield over the last five years.
In addition to outperforming its own five-year average yield, which rose partially because of the share price decline, Cedar Fair's current yield is the highest among major dividend-paying companies in the entertainment industry segment.
SeaWorld Entertainment (SEAS) reported encouraging results in the seasonally light first quarter. SeaWorld has many challenges ahead and this is only three months of improvement in an extended turnaround.
SeaWorld reported a 1Q18 net loss of $62.8 million, or $(0.73)/share, in-line with the net loss of $61.1 million, or $(0.72)/share, a year ago. This quarter's loss included $21.5 million of pre-tax expenses for what appear to be one-time items. Revenues increased over 16% on 15% higher park attendance.
As only five of its 12 parks are open for the full quarter, the company generally reports a loss in each year's first quarter. Earnings as reported were 4% better than the consensus analyst estimate while revenues were about 10% ahead of the consensus estimate.
SeaWorld's new marketing and communication initiatives that promote a more positive image of SeaWorld, the company's new rides and attractions and new promotional pricing seem to be working.
Average ticket prices fell about 2% but this was more than offset by stronger in-park spending on food and merchandise. SeaWorld's cost-cutting initiatives helped, as well, with at least $25 million more savings coming by year-end.
SeaWorld's balance sheet remains extended but improving as EBITDA appears to be on an upward path. Total debt of $1.6 billion, less cash, is about 4.7x Adjusted EBITDA for the last 12 months. This multiple probably should be worked down to about 3.0x or so given SeaWorld's cyclicality and relatively high capital spending requirements.
Similarly, SeaWorld needs to demonstrate that it can consistently attract more park attendees against tough competition and its clouded image as well as show that it can produce higher profits from its higher attendance.
The company spoke about how it is using its capital more efficiently, particularly with measuring the returns from spending on each new ride and attraction. Its emphasis on better food and merchandise seems to be boosting attendance and in-park sales.
The new Sesame Street attraction in Orlando, complete with a daily parade with Sesame Street characters, could bolster it against the sharp competition in that market.
Overall, the results indicate that the company has the ability to bring in more park attendees and get them to spend more in the park. While much work needs to be done, this quarter shows that the task can be accomplished. At 9.4x estimated 2018 EBITDA, the shares remain undervalued relative to their turnaround potential.
Six Flags (SIX) owns and operates 20 regional theme, water, and zoological amusement parks in the U.S., Canada and Mexico. Six Flags filed for bankruptcy in June 2009, and emerged from bankruptcy in May 2010.
Since then, the company embarked on a program to grow revenues by enhancing existing rides and food services, regularly adding major new attractions, and instituting a season pass program that encourages repeated visits.
That strategy worked, with Six Flags growing annual revenues 39% from 2010 to 2016 -- from $976 million to $1.359 billion.
In 2016, Six Flags initiated an international expansion program. Working with local partners, Six Flags plans on opening 11 new theme parks in China, plus parks in Saudi Arabia, and Dubai, all open by 2022.
Six Flags is also expanding its U.S. operations. Just last month, it acquired the lease rights to operate five additional U.S. theme parks.
EPR Properties (EPR) is an equity REIT, which focuses its ownership on Megaplex theaters and family entertainment centers, owning 167 of these properties at last count.
The entertainment division includes 25 ski areas, 31 golf entertainment complexes, 20 attractions and 5 other types of recreation centers. The third segment is schools, with the company owning 146 private, charter and early childhood education schools.
In 2017 a client company received a New York gaming license and development started on the company's Resorts World Catskills development. The casino opened in February 2018. As an income stock, EPR Properties has done very well for investors.
The company has steadily added properties in all three sectors and has a strong pipeline in development. The result has been an average of 7% compounded dividend growth since 2010. The stock also pays monthly dividends.
I added EPR Properties to The Dividend Hunter recommendation list in November 2014 and it has returned 35.4% to investors since that time. The stock currently yields 7.1%.
This stock has one of the most attractive combinations of current yield and dividend growth potential in The Dividend Hunter recommendations list. EPR Properties yields more than other net lease REITs based on the fear that in the age of streaming video, people will stop going to the movies. However, facts show that movie attendance and revenue continue to grow.
The recent share price decline for EPR Properties was completely unwarranted. Some fake news hit the share price, even as revenues, profits and the dividend continue to grow. At the current 7% yield, the REIT is a great value for long term investment.
While media and entertainment stocks have struggled to gain traction with investors, I remain a fan of Disney (DIS) . I think the company's theme park and movie operations will continue to put up excellent numbers.
And the firm's broadcasting and cable businesses, though pressured a bit by lots of competition, are attractive assets as well. The company is experimenting with new over-the-top streaming services, which should help monetize its content. I remain bullish on Disney's prospects.
Regarding the theme parks at Disney, I am bullish for several reasons. One, Disney seems to have some pricing power in this segment, which should help growth.
Two, Disney is a master at monetizing brands at its theme parks, and the firm's deep bench of characters and superheroes provides a number of alternatives for bringing new rides and attractions at its theme parks.
Three, while Disney has increased its global footprint with theme parks outside the U.S., there are still ample opportunities for further international expansion.
Sometimes taking a step back and looking at the big picture can provide insights for investors. Walt Disney's market cap is less than $150 billion. Market capitalization is determined by multiplying the number of outstanding shares times the per-share stock price. In essence, a stock's market cap is the value Wall Street is assigning the company.
Interestingly, the market cap for Netflix (NFLX) is now $153 billion. That's right. Wall Street now values Netflix -- with annual sales of around $13 billion and net income of around $670 million based on the last 12 months -- more than Disney, with annual revenue of more than $55 billion and net income of $11 billion.
Which company would you rather own? For me, the choice is pretty easy. If I had unlimited funds, I would much rather own Disney than Netflix. I think I would be getting much greater bang for my investment.
While Disney stock could continue to be a sluggard in the near term, I think there is just too much value here to ignore. I like the stock's long-term prospects and would be a buyer at these prices.
-- This commentary was originally published June 8 on Real Money.