It’s hard to say what the dividend growth trajectory will be, but the company seems focused on creating shareholder value. The share buybacks will lower the payout ratio, creating more room to grow the dividend. And with a high barrier to entry in the North American amusement park industry I expect Six Flags Entertainment Corp (NYSE:SIX) to continue to generate ample excess cash. With a high yield and reasonable growth prospects, Six Flags looks like a nice high-yield dividend stock.
Six Flags investor presentation
An even higher yield
Cedar Fair, L.P. (NYSE:FUN) owns 11 amusement parks, five water parks, and five hotels. This compares to Six Flag’s (NYSE:SIX) 18 amusement parks. Cedar Fair does about $1 billion in annual revenue, similar to Six Flags Entertainment Corp (NYSE:SIX), but its market capitalization is 50% lower.
This year Cedar Fair, L.P. (NYSE:FUN) raised its dividend by over 50% to $0.625 per quarter per share, putting the projected dividend yield at an eye-popping 5.88%. Cedar Fair has performed better than Six Flags financially over the past decade, with positive EPS every year except 2007 and 2010. EPS in 2012 was $1.81, but the free cash flow was far higher at $3.39 per share.
Cedar Fair, L.P. (NYSE:FUN) is sitting on about $1.6 billion in debt, on which it paid $111 million in interest in 2012. This is nearly twice as much in interest payments compared to Six Flags on roughly the same level of debt.
The total dividend payment in 2013 will be about $140 million, which is 74% of 2012 free cash flow. Like Six Flags, this is quite high. One thing to note is that this dividend payment is higher than the free cash flow of any year from 2008 to 2011.
Because of this, I’m a little concerned about the sustainability of the dividend. A smaller dividend increase than the 50% increase earlier this year would have been more prudent, with the excess cash going towards paying down the debt. I think that Six Flag’s dividend may be a bit safer.
But if you’re looking for a super-high yield Cedar Fair, L.P. (NYSE:FUN) has your number. Mind you, a single bad year will likely require a dividend cut, and there’s no money left over for a buyback program. But yields this high are few and far between.
Not a dividend stock at all
Although The Walt Disney Company (NYSE:DIS) operates extremely popular amusement parks this makes up a small part of the company’s revenue and profits. Disney is not really a dividend stock, with a yield of just 1.15%, but the company has much brighter growth prospects than either Six Flags or Cedar Fair due to its diversified nature. The Walt Disney Company (NYSE:DIS) owns ESPN, ABC, Marvel Studios, and recently bought Lucasfilms. With new Star Wars films in the pipeline, along with more comic-book films in the future, Disney is laying the foundation for years of strong growth.
