Conventional wisdom says that fresh IPOs don’t pay dividends. After all, these companies tend to be in their earlier stages and need that cash to propel growth, and investors have become conditioned to expect capital gains rather than income from these stocks.
But the IPO market isn’t the same as it used to be.
As I pointed out in a recent post in the IPO Playbook, the hot deals are actually coming from larger companies.
Companies that tend to have decent growth rates and strong barriers to entry.
Companies more likely to pay a dividend.
Yes, IPOs are more readily diving into the income pool, and one of the latest jumpers is SeaWorld (SEAS). The company’s board has declared a 20-cent quarterly payout, which translates into an annual yield of 2.1% on current prices.
While that’s not necessarily large, it’s about on par with 10-year Treasuries and helps provide decent support for the stock. It also shows confidence from SeaWorld’s management that the company can crank out cash flows.
Consider that in the latest quarter, SEAS posted a 12% increase in revenues to $238.6 million. And going forward, SeaWorld should see even more growth — at least during the next two quarters, a period during which the company sees two-thirds of its revenues.
The company has been hard at work innovating new concepts. One is Aquatica, which is a park with a tropical South Seas setting, high-energy rides and white sand beaches. Then there is Discovery Cove, a marine-life day resort where guests can swim with dolphins, take underwater reef tours or just relax at private cabanas.
SeaWorld has also been smart with yield management. That is to say, the company has a pricing system that maximizes revenues, not necessarily attendance. A key to this has actually been the use of mobile apps, which guests use while they are at the parks.
So is SeaWorld a much better buy now that it’s doling out quarterly checks?
Not necessarily. Since coming public in April, shares have gone up at a pretty nice clip of 36%, put that has pushed its valuation to a hefty 37 times trailing 12-month earnings. That’s about in line with rivals like Cedar Fair (FUN), and definitely expensive compared to Disney (DIS) and its 19 P/E.
In light of this, there’s probably no rush to dive into SeaWorld shares for now, dividend or not.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.