Thursday, April 4, 2013

Ramp up your “Fun” Quotient

I’ve always loved stocks that bring out the kid in me, and when I fired up my search engines this morning, I lucked out! I’ve found three excellent companies with growing earnings, nice dividends, and appealing technical indicators—all in the entertainment industry. It’s a category that just loves summer, when families flock to leisure activities. And with the economy improving, all indicators are that this sector will have a bonanza season.

And adding an extra dollop to these companies appeal—for me—is the fact that they are midcap stocks—one of my favorite hunting grounds.

I love the small- and mid-cap universe, as they are usually companies who specialize in a few products or services. That area of investing offers several advantages for investors, including:

·       It makes their financial statements more visible, so that you can easily see early warning signs of impending trouble. No need to wade through scores of subsidiaries, trying to figure out how their fortunes affect the consolidated company, or if they are the next “Enron” in training.
·       These are the sorts of companies whose expertise in their industry or niche is very often attractive to larger businesses that would rather buy them than try to copy and compete with them. And that usually means a nice premium for their shareholders. 

·       They are often “undiscovered stocks”—not because they are speculative, but because they aren’t large enough yet to need Wall Street’s money, so they aren’t on the buy list at the majority of brokerage houses. That means you can buy them at discounted prices, and when they do begin attracting the attention of the analysts and institutions, their stocks can soar.

In the past, many of these types of companies offered great potential for share appreciation, but not much in the way of dividends. I’m happy to say that scenario has changed—and for the better.

Right now, a whopping 40% of the stocks in the Russell 2000 Index pay dividends—the highest level since 2006, according to a recent report by Bank of America Merrill Lynch.

The rising tide of dividends should help encourage more of those investors who are still on the sidelines, to come out and play. It’s a shame that many folks have missed this incredible run-up in the markets, but it’s not too late to get in and get your share of the upside.

And my three picks today should satisfy even the wariest of investors. They each have the potential for some nice share appreciation—as well as healthy dividends to line your pocket along the way.

The first stock is a company that I’ve known for many years. It’s been in and out of my portfolio more times than I can count. It has a special place in my heart, as my mom used to take my brother and me to their flagship amusement park during the long, humid summers in Ohio.

The company is Cedar Fair (NYSE: FUN), and it owns 11 amusement parks, 4 outdoor water parks, 1 indoor water park, and 5 hotels around the nation, under names such as Great America, Worlds of Fun, and Cedar Point (my childhood stomping grounds!) It is structured as a limited partnership, which means it has to pay out the majority of its earnings to its unit holders. FUN just increased its dividend by 50%. And right now, the company’s yield is 6.40%; the shares are trading at $40 and change, and I think they can go up to $48.

Next is Six Flags Entertainment Corporation (NYSE: SIX), the world’s largest amusement park operator. It’s the owner of 18 theme parks, primarily in the U.S., but also a couple in Mexico and Canada. This is a turnaround story, with the company recently posting record earnings. Another great dividend payer, with a yield of 6.38%, the shares recently hit their 52-week high, but the parks are headed for a fabulous year, so I think there’s more appreciation to be had—up to around $85 per share.

Lastly, it’s not an amusement park, but it’s definitely a leader in the leisure space. The company is Ryman Hospitality Companies (NYSE: RHP). It owns the fabulous Gaylord Hotels, whose Orlando hotel was the site of the World Money Show last month. The company—headquartered in Nashville, TN—has a big presence there with the Ryman Auditorium, the General Jackson Showboat, the Grand Ole Opry, and another Gaylord hotel and convention center. It has the largest number of top 10 convention hotels in its industry. And with its new deal with Marriott, the company has access to the Marriott Reward customer base—more than 40 million members. Ryman has just converted to a Real Estate Investment Trust, so look for dividends to keep on rising. It currently has a 4.4% yield. And trading around $44, I think it can easily rise to $60.
While the shares of each of these companies has been on the rise, I don’t think you’re too late to get in now, enjoy the dividends, and expect additional appreciation in the next few months. And they are the perfect way to add some “fun” to your portfolio.

No comments:

Post a Comment