Dividend payers deserve a berth in any long-term stock portfolio. But seemingly attractive dividend yields are not always as fetching as they may appear. Let's see which companies in the general entertainment and travel industry offer the most promising dividends.

Yields and growth rates and payout ratios, oh my!
Before we get to those companies, though, you should understand just why you'd want to own dividend payers. These stocks can contribute a huge chunk of growth to your portfolio in good times, and bolster it during market downturns.

As my colleague Matt Koppenheffer has noted: "Between 2000 and 2009, the average dividend-adjusted return on stocks with market caps above $5 billion and a trailing yield of 2.5% or better was a whopping 114%. Compare that to a 19% drop for the S&P 500."

When hunting for promising dividend payers, unsophisticated investors will often just look for the highest yields they can find. While these stocks will indeed pay out the most, the yield figures apply only for the current year. Extremely steep dividend yields can be precarious, and even solid ones are vulnerable to dividend cuts.

When evaluating a company's attractiveness in terms of its dividend, it's important to examine at least three factors:

  1. The current yield
  2. The dividend growth
  3. The payout ratio

If a company has a middling dividend yield, but a history of increasing its payment substantially from year to year, it deserves extra consideration. A $3 dividend can become $7.80 in 10 years, if it grows at 10% annually. (It will top $20 after 20 years.) Thus, a 3% yield today may be more attractive than a 4% one, if the 3% company is rapidly increasing that dividend.

Next, consider the company's payout ratio, which reflects what percentage of income the company is spending on its dividend. In general, the lower the number, the better. A low payout ratio means there's plenty of room for generous dividend increases. It also means that much of the company's income remains in its hands, giving it a lot of flexibility. That money can fund the business's expansion, pay off debt, buy back shares, or even buy other companies. A steep payout ratio reflects little flexibility for the company, less room for dividend growth, and a stronger chance that if the company falls on hard times, it will have to reduce its dividend.

Peering into general entertainment
Below, I've compiled some of the major dividend-paying players in the general entertainment and travel industry, ranked according to their dividend yields:

Company

Recent Yield

5-Year Avg. Annual Div. Growth Rate

Payout Ratio

My Watchlist

World Wrestling Entertainment (NYSE: WWE)

11.6%

18.5%

203%

Add

Carnival Corp. (NYSE: CCL)

2.6%

0%

28%

Add

Cedar Fair (NYSE: FUN)

1.7%

(27.4%)

NM

Add

Six Flags Entertainment (NYSE: SIX)

0.3%

New dividend

1%

Add

Data: Motley Fool CAPS. NM = Not meaningful due to negative earnings.

If you focus on dividend yield alone, you might end up with World Wrestling Entertainment, but a yield that high is usually suspect. Indeed, over the past year, the stock has sunk 34%, and its payout ratio shows it's paying out more than twice its net income on dividends.

Yet looking at dividend growth leaves no other promising alternatives. You may notice that some major players in the entertainment and travel industry aren't on the list. Some, like MakeMyTrip (Nasdaq: MMYT), are small and need their excess cash to fuel growth. Others, like priceline.com (Nasdaq: PCLN), are far bigger but still in their rapid growth phase, preferring to invest in growth over paying cash to shareholders.

Just right
As I see it, this isn't the most attractive bunch of companies when viewed from a dividend-seeking perspective. You may want to look into greener pastures, such as in foreign wireless companies, waste management, or beverages. Carnival Corp. offers a decent yield, but you can get decent yields elsewhere that are more likely to grow. World Wrestling may turn itself around, but its hefty dividend is a little wobbly at the moment. Risk-takers may want to consider it, though.

Of course, as with all stocks, you'll want to look into more than just a company's dividend situation before making a purchase decision. Still, these stocks' compelling dividends make them great places to start your search, particularly if you're excited by the prospects for this industry.

Do your portfolio a favor. Don't ignore the growth you can gain from powerful dividend payers.

To get more ideas of great dividend-paying stocks, click here to read about 13 High-Yielding Stocks to Buy Today.

Longtime Fool contributor Selena Maranjian does not own shares of any companies mentioned in this article. Priceline is a Motley Fool Stock Advisor pick. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.