At long last, the brutal winter is behind us and Americans are trading their heavy coats and boots for shorts and flip-flops. And, with the improving economy, more Americans are ready to get in their cars and vacation.
It’s a good time to evaluate the companies that benefit most from the summer season. An industry group that reaps huge summer profits is theme parks. Two theme park stocks in particular look attractive: Six Flags Entertainment Corp. (NYSE: SIX) and Cedar Fair L.P. (NYSE: FUN).
The reason these stocks look interesting is because they are highly profitable, they are right in their most lucrative time of year, and they distribute the bulk of their earnings to investors. Both Six Flags and Cedar Fair pay generous dividends – 4.3% and 5.2%, respectively.
The reason they can afford such high dividend yields, while the S&P 500 index barely yields 2% on average, is because they are fundamentally sound.
For example, Six Flags is the world’s largest regional theme park company with $1.2 billion in revenue and 18 parks across North America. Last year, Six Flags had its fifth consecutive year of record financial performance.
Revenue and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) rose 6% and 9%, respectively, in 2014. Six Flags’ revenue was particularly strong in the fourth quarter, soaring 19% year over year. The strong revenue growth was primarily driven by a 3% increase in guest spending and a 15% increase in attendance.
Meanwhile, Cedar Fair owns and operates amusement and water parks, as well as hotels, in the United States and Canada. The company operates approximately 11 amusement parks, three outdoor water parks, one indoor water park and five hotels.
Cedar Fair distributes even more of its cash flow than Six Flags, due in part because it’s structured as a partnership. Investors are considered unitholders, and receive a higher distribution due to this favorable tax classification. It makes sense for Cedar Fair to operate under this structure, since the company’s operations are heavily based on real estate properties. As a result, Cedar Fair has paid a distribution for 29 years in a row.
Last year, Cedar Fair grew revenue and adjusted EBITDA by 1% each. This was due to higher average in-park guest spending, as well as an increase in out-of-park revenue. Like Six Flags, Cedar Fair also celebrated its fifth consecutive year of record performance in 2014.
This year, Cedar Fair has some exciting initiatives in store to make 2015 a sixth consecutive record year. For example, the company plans to completely renovate its beachfront hotel and group catering pavilions at the flagship park, Cedar Point. Also, Cedar Fair is aggressively investing in the portfolio-wide rollout of its all-season dining program, as well as the continued investment in FunTV, its in-park television network.
Six Flags and Cedar Fair are both growing, and each of them wrapped up a fifth consecutive year of record operating results last year. This demonstrates the fantastic recovery that the theme park industry has enjoyed in the aftermath of the Great Recession. Theme parks are highly cyclical and dependent on the state of the overall economy. As the housing, labor and stock markets have each recovered over the past several years, so have theme parks.
Even better, both stocks are highly attractive as income investments, because they pay very high dividend yields, and modestly grow their dividends over time. In 2014, Six Flags increased its dividend by 10%, while Cedar Fair upped its own payout by 7%.
This type of dividend growth is rare, especially when combined with such high current dividend yields. Income investors get a win-win in the forms of high starting yields and also high dividend growth.
For these reasons, income investors may want to look at Six Flags and Cedar Fair – high-yield theme park stocks that reap big rewards from the summer season.
Dividends for Every Month of the Year
If you’re looking for just one dividend stock to round out your income stream, consider a little-known company that pays out dividends 12 months of the year.
Click here to see the full details of this company in my Dividend Calendar…