Regal Entertainment Group (NYSE:RGC) operates motion picture theaters in the United States including Regal Cinemas, United Artists theaters, and Edwards cinemas. It owns and operates 576 theatres, which includes over 7,330 screens. This company, with strong earnings history and a high dividend yield, might be a good way to continue riding on the success of movie production companies such as Walt Disney (NYSE:DIS) which has made over $300 million already just from the theater screenings of the film Frozen.
With a 4.90% yield, Regal Entertainment is the kind of dividend paying stock that income investors like to see, one with stable earnings history, and still with potential for more growth. The stock price itself has done well recently, beating the S&P 500 with an increase of 37% in 2013 and 60% over the last two years in an almost steady climb. With a P/E ratio of 17.35, it is also still fairly priced within the industry.Compare this with competitor Cinemark (NYSE:CNK) which has a P/E of nearly 23.
Even with these advances over the last few years, the price still has growth potential. Regal's earnings have grown over 200% in the last year. For the most recent quarter reported, revenue for Regal was higher than the industry average, and has increased 17.3% over the same period last year.
One important point of consideration for investors looking to buy now, even though the stock price has already appreciated so much recently, is that the company's cash flow has also increased by over 86% in the last year. With these increased cash flows, the company should have the liquidity and stability to grow operations and still continue to reward shareholders with high dividends.
What could hold this company back?
There is one area of concern, the company's lackluster profit margins. With a gross margin of less than 23%, this company is below the industry average in this metric. While the company has strong and growing earnings, the ability to retain those earnings as profit will determine how successfully the company can continue to reward shareholders. However, gross margin have risen since the same period last year, a good sign that the company is proactive in strengthening their operations.
Other analysts have also seen these less than optimal margins and some have downgraded Regal as a result. Multiple firms, including Zacks and others, have downgraded the stock from buy to hold over the last few months, with a price target near $21-$22.
High yield, strong and growing earnings, and a track record of showing the willingness and ability to proactively work on areas that need attention all make Regal an attractive stock for income investors. The company will be reporting their 2013 earnings soon, so keep watching for growing revenues and increased profit margins. The company's downgrades may be good for investors who want to get in while others are looking away.
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Fool contributor Bradley Seth McNew has no position in any stocks mentioned. The Motley Fool recommends Walt Disney. The Motley Fool owns shares of Walt Disney. 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.