Take a “Ride” for Appreciation and Income
I grew up primarily in Ohio. My brother and I couldn’t wait for the summers, when my mom would take us on our annual trek to Cedar Poin—the fantastic amusement park in Sandusky, Ohio. Known far and wide as “the roller coaster capital of the world,” (the company actually trademarked that slogan), we could talk of nothing else but what kind of new coaster we would find at the park.
I grew up primarily in Ohio. My brother and I couldn’t wait for the summers, when my mom would take us on our annual trek to Cedar Point—the fantastic amusement park in Sandusky, Ohio. Known far and wide as “the roller coaster capital of the world,” (the company actually trademarked that slogan), we could talk of nothing else but what kind of new coaster we would find at the park.
So I had a big smile on my face when I read the recommendation of Cedar Fair (FUN), the amusement park’s parent company, from Patrick McKeough, editor of Wall Street Forecaster. I recently quoted him in a Daily Alert for Wall Street’s Best Dividend Stocks (formerly Dividend Digest). Patrick had this to say:
“Cedar Fair (FUN) began operating in 1987 and is now one the world’s largest amusement park operators. Its parks attracted more than 23.3 million visitors in 2014.
Its flagship park is Cedar Point, in Sandusky, Ohio, which was first developed as a recreational area in 1870. Other major parks include Knott’s Berry Farm near Los Angeles, Kings Island in Cincinnati, Dorney Park in Pennsylvania and Adventure in central Michigan. In 2006, Cedar Fair expanded outside the U.S. for the first time when it purchased Canada’s Wonderland near Toronto. In all, it owns 11 amusement parks, three outdoor water parks, one indoor water park and five hotels.
The partnership’s revenue was $1.16 billion in 2014 and should reach $1.2 billion this year. The company’s earnings came in at $1.95 a unit (or $109.2 million) in 2014.
To attract to new and repeat visitors, Cedar Fair continues to invest heavily in new rides and attractions. It spent $166.7 million on capital projects in 2014 and will likely spend a further $130 million to $135 million in 2015.
The partnership’s hotels are another growth area. In the first half of 2015, out-of-park revenue (including hotels, food and merchandise) rose 10.5% from a year earlier. That’s mainly because it recently renovated a hotel at Cedar Point.
Cedar Fair’s sound balance sheet will let it continue its upgrades. As of June 30, 2015, its long-term debt was $1.6 billion, which is a manageable 53% of its market cap. It also held cash of $35.4 million.
The partnership also aims to spur its growth with initiatives beyond new attractions. For example, it’s placing more emphasis on all-season passes and dining promotions, as well as new events to attract more visitors in the spring; Cedar Fair gets most of its revenue between May and September.
The partnership feels these moves will increase its gross earnings from $431.3 million in 2014 to at least $500 million in 2018. That would give it plenty of room to raise its current annual distribution rate of $3.00 a unit.
The units have gained 11.5% since the start of the year and now trade at 19.8 times the $2.68 a unit Cedar Fair will likely earn in 2015. Its earnings could climb to $3.45 a unit in 2016, and the stock trades at a more reasonable 15.4 times that forecast.
Cedar Fair is a buy.”
As you can see, Cedar Fair has grown far beyond the one-park business of my youth. The company has followed a winning course—continuing to stand out as the leader in new roller coasters, adding revenue-generating avenues such as its hotels, and acquiring strategic properties that add to its bottom line.
The company is a “grandfathered” Master Limited Partnership, one of the few not in the energy business. Consequently, it pays its shareholders, or unit holders in this case, 90% of its income, which makes for a healthy dividend—currently at 5.39%.
The company books most of its revenues in the second and third quarters, and in general, when business slows down in the third quarter, the stock often takes a breather—a fine time to buy for appreciation as well as some hefty income.
The brokerage industry sure thinks so. Hilliard Lyons recently upgraded the shares to “Buy” and Janney added it to its “Buy” list, citing growth in ticket prices, recent acquisitions and the company’s healthy dividend.
Investors in the stock can expect Cedar Fair to do whatever it takes to continue attracting roller coaster fans to new and exciting rides. Last month, the company announced its 18th roller coaster, the Valravn, which is 223 feet tall, has an initial 90 degree drop that is held for four long seconds, then plunges a record-setting 214 feet, speeds up to 75 miles an hour, and sends riders through three inversions.
Editor, Wall Street’s Best Investments and Wall Street’s Best Dividend Stocks
P.S. With strong growth potential and a high 5.39% dividend yield, Cedar Fair (FUN) is a good example of the type of stocks that I select from hundreds of investment advisories and research reports every month. If your portfolio could benefits from adding growth and income stocks like FUN, here are the details on how to sign up.