Cineplex (TSX:CGX) is Canada’s leading diversified entertainment and media company. It has built a strong brand for itself over the years — a brand that is loved and at least well-known among different target markets such as the baby boomers, millennials, and everyone in between. It is everywhere, and it is a force to be reckoned with in everything entertainment.
It is also the best high-yield dividend stock to buy today.
Cineplex stock is trading pretty much in line with where it was trading at the beginning of the year and at half of what it was trading at in 2017. This is not a pretty picture at all. But at least investors who have owned the shares have been collecting a very generous dividend; the dividend yield of Cineplex stock is currently a hefty 7%. So, shareholders are being rewarded very nicely to park their money here and wait for upside in the form of capital gains.
I believe this upside is coming.
High-yield Cineplex stock: the dividend is safe A question that many investors have had is whether Cineplex’s dividend is safe. A 7% dividend yield, after all, is often due to real problems and a real threat, and there’s the possibility that the dividend will therefore be cut in the future.
In my view, we can have confidence in this dividend. The dividend is more than covered by cash flow, and Cineplex has a good track record of paying out a dividend every year for the last 10 years. Cineplex’s dividend has grown consistently in the last 10 years at a compound annual growth rate of 3.5% to the current annual dividend of $1.80 per share.
As far as cash flow goes, Cineplex also has a good track record of increasing its cash flows. Since 2014, Cineplex has grown its operating cash flow by 24% for a compound annual growth rate (CAGR) of 4.4%.
Increasing diversification into higher-growth segments In the second quarter of 2019, revenue from sources other than the box office represented a full 27% of total revenue. Cineplex’s Media revenue increased 11.4%, Digital Media increased 41.3%, Amusement, excluding Rec Room, increased 16.8%, and Rec Room revenue increased 36.4%. In total, revenue from sources other than the box office increased an impressive 20.9%.
So, we can see how this entertainment behemoth is successfully morphing from a theatre exhibition business, which is plateauing, to an entertainment company that is growing fast. As the company continues to show that it can successfully complete this transformation, investors will realize that this stock, which is currently trading at roughly 20 times 2018 earnings, is worth much more.
As a result of better-than-expected results in the media and amusement segments, Cineplex posted earnings that beat expectations in the second quarter. I think that this is testament to the fact that expectations on the stock have gotten too low, and this often represents a great time to be a buyer.
Foolish bottom line In closing, I would like to point out that although Cineplex still has work to do to further, the company is successfully making progress while still churning out huge amounts of cash flow and increasing its dividend along the way.
Cineplex stock is the best high-yield stock to buy today, with the movie exhibition business providing a level of stable cash flows to support the company’s push into higher-growth segments. Investors can sit back and collect this dividend while the company plants the seeds for future capital gains.
Fool contributor Karen Thomas has no position in any of the stocks mentioned.
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