How would you like to collect some cash from a couple of high-dividend stocks whose products you can actually use for fun?
If you invest in a consumer products company like Colgate-Palmolive (CL), you might help ‘em out by purchasing a bar of its soap. That’s kinda dull. But with Cedar Fair, L.P. (FUN) and Six Flags Entertainment Corp (SIX) — two classic amusement park operators — you can literally ride your investment all the way to the bank.
These high-dividend stocks yield 6.3% and 5.1%, respectively, all while churning out triple-digit returns over the past few years.
And there’s more good times to come for both SIX and FUN stock.
The Serious Business of Fun
First, a quick look at the most recent numbers from this pair of high-dividend stocks:
- Six Flags, headquartered in Texas, owns 16 amusement parks throughout the U.S. with an additional one in Mexico City and one in Canada. For its recent third quarter, SIX stock reported adjusted earnings per share of $1.56, a 28% year-over-year increase, on record revenue of $542 million, a 7% increase. Adjusted EBITDA, a favored metric of the amusement park industry, came in at $291 million, up 8%. And the dividend kept growing, as SIX stock increased its payout by 11%.
- Cedar Fair, with its legacy park Cedar Point located in Ohio, owns 11 parks across the U.S. and Canada. FUN stock also raised its dividend, increasing its payout from 70 cents to 75 cents, a 7% hike. Its financial results, though, weren’t as impressive as Six Flags’. Cedar Fair increased Q3 net revenues by 1% to $595 million, while adjusted EBITDA was off slightly, at $316 million in the third quarter compared to $318 million in last year’s same quarter. FUN stock’s EPS for the quarter was down to $2.91 from $3.41 as well. Poor weather, especially for Cedar Fair’s Midwestern parks, blunted its performance.
A Wild Ride
Some investors are uneasy with FUN stock or SIX Stock, high dividends notwithstanding. And that’s understandable. Both companies have had major troubles in their recent past — Six Flags went through bankruptcy proceedings in 2009, while Cedar Fair flirted with financial disaster after it took on $1.24 billion in debt to purchase Paramount Parks in 2006. The Great Recession added to these woes.
Further weighing on both companies is the fact that they’re pure plays in the amusement park space, unlike Walt Disney Co (DIS), which is diversified with its massive movie and TV business.
Both Cedar Fair and Six Flags also suffered from questionable management decisions, but both have found new leadership and new life in a better economy.
Six Flags is increasing attendance and is growing its revenue. Although Cedar Fair had some bumps in the quarter, in the last couple of years its operations have stabilized and it shows healthy numbers. Both companies continue to invest in their parks while keeping a closer eye on expenses and debt.
Key for investors in high-dividend stocks, both FUN stock and SIX stock are committed to raising their dividends. Six Flags has grown its payout more than 70% in the past two years alone — Cedar Fair’s has jumped by almost 90%!
Also, it’s worth pointing out that some investors might be nervous about the underlying financial structure of FUN stock. Cedar Fair is a master limited partnership, or MLP, so its metrics are a little different than other stocks.
Non-cash depreciation is a large factor in MLP accounting, so this skews ordinary dividend payout ratios. Because of this, adjusted EBITDA accurately shows that MLPs actually have more cash on hand to pay dividends than income numbers show. The take-home info for investors is that adjusted EBITDA is considered by industry analysts as a better measure of dividend coverage than earnings are.
Even though SIX stock isn’t an MLP, the non-cash depreciation factor works there much like it does for MLPs in distorting the dividend coverage. So, again, adjusted EBITDA is considered a truer measure.
On that front, SIX stock’s payout ratio is a bit high at roughly 80% — not dangerous, but doesn’t leave a ton of room for massive dividend growth — while FUN is at a perfectly fine 50%.
Riding the High-Dividend Stocks
Investors with a low risk tolerance who are uncomfortable about the potential roller coaster of the amusement park business should probably skip FUN and SIX stock. Both companies, however, are managing their risks better than in previous years.
I think the current stability and growth potential in the amusement park industry more than balances out these risks, anyway. So if you’re looking for high-dividend stocks, you could do much worse than Six Flags and Cedar Fair.
As of this writing, Greg Sushinsky was long FUN.