Amusement parks provide family-friendly fun to millions of people around the world every year. That much you know. But what you may not be aware of is that some theme park companies can also make for outstanding investments, particularly for investors seeking large and growing dividends.
If that sounds interesting to you, read on to learn about the best dividend stock in the amusement park industry available in the market today.
Image source: Cedar Fair.
Cedar Fair (FUN -0.56%) is a familiar name to amusement park fans, but perhaps less so for dividend investors. That's a shame because while the company's 11 parks and 120 rollers coasters serve up stomach-dropping fun to more than 25 million annual guests, its master limited partnership units yield a thrilling 5.3%.
The company's operations generate strong and stable cash flow that allows it to return cash to its unitholders via its bountiful dividend even as it continues to invest heavily in new rides and attractions. That's important because new experiences give people more reasons to visit Cedar Fair's parks, which tends to boost attendance and guest spending. It's a powerful growth driver that's helped to fuel steady increases in revenue and earnings in recent years.
Data source: Cedar Fair investor presentation.
And as Cedar Fair's cash profits have risen, so too has its dividend payout to investors.
FUN Dividend data by YCharts.
Here are three reasons investors can expect more of the same in the years ahead:
1. High barriers to entry
As one of the country's largest amusement park operators, Cedar Fair owns a valuable collection of difficult-to-replicate assets. It costs Cedar Fair roughly $500 million to build an amusement park, with construction spanning several years. And that's if it can acquire the land and permits to build one.
Moreover, most areas can't support more than one large theme park, which further deters competitors from encroaching on Cedar Fair's locations. In fact, largely due to these reasons, no new regional parks have been built in the past two decades.
2. The only game in town
With each of its parks benefiting from near-monopoly status in their respective regions, they enjoy strong pricing power; Cedar Fair can raise prices each year without unduly hurting its ticket sales. This lack of local competition also helps to lessen the blow of economic downturns on its business, thereby making it a dependable cash generator -- something that's important to dividend investors seeking a reliable income stream.
3. Expansion opportunities
Cedar Fair has an assortment of new rides and attractions scheduled to come on line in the coming years. This includes new roller coasters, expanded water parks, and upgraded hotels at several of its parks.
Taken together, these investments should help to lift attendance at Cedar Fair's parks and drive further increases in revenue. Better still, by upgrading the quality of its amusement park assets, Cedar Fair is also improving their long-term profit and cash flow-generating abilities. And with the company owning approximately 1,400 acres of undeveloped land adjacent to its parks, there's still ample room for additional growth investments.
More thrills = more dollar bills
All told, Cedar Fair is poised to reward investors with a growing stream of dividend distributions in the coming years. And with its MLP units currently trading for roughly 21 times free cash flow -- a relative bargain considering the quality of its assets and their long-term cash-production potential -- income seekers may wish to take this high-yield amusement park investment for a ride.
