Please ensure Javascript is enabled for purposes of website accessibility

3 Reasons to Buy This High-Yield Dividend Stock

By Demitri Kalogeropoulos – Nov 10, 2018 at 9:48AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Investors shouldn't ignore Cedar Fair as a solid income investment.

Cedar Fair (FUN -1.51%) isn't having the best fiscal year. Attendance is trending lower for the theme park specialist despite the economy's strength, and that has translated into weaker earnings so far in 2018.

Cedar Fair doesn't have a diverse business that can shield it from economic swings or from unfavorable weather trends. This isn't Disney. However, the stock could make a solid buy for investors who are willing to accept some extra volatility.

Let's take a look at a few good reasons to consider this master limited partnership that pays out a yield of over 7%.

Young women riding a roller coaster.

Image source: Getty Images.

Recovering from a tough start

Start with its solid operating results so far in 2018. Sure, the company had a tough outing in the opening weeks of the summer theme park season as attendance fell by 3%. But trends have improved since then. Park visits slipped by less than 1% in the third quarter, and that dip was driven almost entirely by disruptive weather, particularly a hurricane that caused the closure of two parks for a key weekend in September.

Other business lines are humming along nicely, with in-park guest spending rising 5% last quarter. Cedar Park's nonpark revenue is growing, too, thanks to rising prices and increased occupancy at its hotels.

Overall, the company is on pace to notch sales of about $1.32 billion this year, which would be even with last year. Adjusted earnings should drop for the second straight year from 2016's record result, but the range that management predicts, of between $460 million and $470 million, isn't far from last year's $479 million haul.

Solid finances

Meanwhile, the stock seems reasonably priced, especially considering its high payout. Cedar Fair is valued at less than 16 times earnings today, which represents a discount compared to the broader market's P/E of 22. The stock has dropped by nearly 20% this year and that slump pushed its dividend yield to over 7%.

Given its healthy cash flow trends, there's little risk to the payout being cut absent a sharp economic downturn. In fact, management just boosted the distribution by 4%, consistent with their long-term plan to increase it at about that pace every year.

The long-term plans

Investors can also look forward to steadier results over the long term as Cedar Fair becomes a more diverse business. The growing hotel and in-park food and beverage revenues represent two big initiatives aimed at that target, as does its push toward increased season pass sales.

CEO Richard Zimmerman and his team are also opening more varied entertainment experiences likes shows that should help maintain its draw even during periods of less-than-ideal weather. In the meantime, its appeal should expand as Cedar Fair makes use of the over 1,000 acres of undeveloped land it owns adjacent to its parks, either through new rides and attractions or with extra hotel capacity.

This trend toward diversity helps explain why Cedar Fair's sales have increased in 19 of the last 20 years and are on track to inch higher in 2018 despite its early summer attendance setback. Its intense seasonality, combined with sensitivity to weather events, might keep the stock swinging more than many dividend payers. But investors who can handle the ups and downs should consider owning a stake in a solid business with a promising growth outlook.

Demitrios Kalogeropoulos owns shares of Walt Disney. The Motley Fool owns shares of and recommends Walt Disney. The Motley Fool recommends Cedar Fair. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Cedar Fair, L.P. Stock Quote
Cedar Fair, L.P.
$40.48 (-1.51%) $0.62

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/26/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.