Add This Entertainment Stock to Your Portfolio for Recurring Monthly Income

Despite claims that the demise of the traditional theatre model is coming to an end, Cineplex Inc. (TSX:CGX) is a diversified investment with great long-term prospects that also provides a handsome return for income-seeking investors.

| More on:
The Motley Fool

One thing I love about investing is how passionate and driven investors can be in researching and selecting their investments. This often leads to mixed reviews or ratings across the industry for a single company, leaving investors with the means to make their own decision.

One company that has constantly drawn criticism over the past year is Cineplex (TSX:CGX). While the company is predominately known for operating the largest network of movie theatres in the country, Cineplex is, in fact, an entertainment company that offers a multitude of revenue streams apart from the traditional movie-and-popcorn model.

Why do some investors avoid Cineplex?

Unfortunately, some defensive investors have already dismissed Cineplex as a great investment. Part of that rationale stems from the belief that the traditional movie-and-popcorn model, which is where most of Cineplex’s revenue stems from, is under constant attack from the growing list of smart devices and services that allow us to stream movies from the convenience of our homes without paying the hefty admission and concession fees.

Those investors also argue that as Cineplex is overly reliant on Hollywood for its revenue, a bad quarter at the box office could spell disaster for Cineplex. Critics often point to declining sales during the traditional blockbuster summer season as proof of this.

Fortunately, this too has been debunked, as in recent years Hollywood has opted to release blockbusters around the calendar year rather than in a compressed 12-week schedule in the summer. Over the past year, we’ve seen some of the highest-grossing blockbuster movies of the year released outside this window as proof of that.

The allure of Cineplex and why you should buy now

There are many reasons to consider an investment in Cineplex.

Cineplex’s dividend remains one of the most attractive on the market, and the current 5.45% yield is extremely tempting, as is the fact that the company pays it out on a monthly basis. Additionally, prospective investors should note that Cineplex has provided annual bumps to that great dividend too, making it even more intriguing to investors.

Another point worth mentioning is one that is frequently mentioned by critics — the over-reliance of Hollywood in Cineplex’s revenue stream. While it’s true that Cineplex inherits whatever Hollywood produces, this is far from unique to Cineplex; a similar model can be found throughout the economy. If anything, Cineplex is more diversified than any number of businesses that are subject to that same restriction.

Take, for example, the case of a non-consumer automotive parts manufacturer that deals directly with the automotive giants. That manufacturer would be at the mercy of not just the automotive companies changing their specifications, but also any government policies on material composition or taxation. Similar parallels can be found throughout any consumer products from electronics and furniture to consumables.

Turning back to Cineplex, the unique factor that investors should take more into consideration is that Cineplex is diversifying into other entertainment options within and outside the cinema. Cineplex’s Rec Room entertainment venue continues to draw in higher revenue with each passing quarter, and the company continues to build more locations. The same could be said of Cineplex’s Digital Media segment, which is responsible for the digital signage appearing in fast-food locations across the country.

Both are growing in terms of market share and revenue, and neither have anything to do with watching movies in a theatre, where Cineplex is innovating, too. A great example of this that holds massive potential is Cineplex’s venture in e-gaming, which draws in large crowds to theatres. Customers that watch gaming events pay an admission and then purchase concessions, much like a movie. One notable difference from the movie business is that in the case of gaming, the outcome is not certain, which acts as a catalyst for fans to come to events.

Should you invest?

All investments pose some level of risk, and when it comes to Cineplex, there are vastly different views among investors. In my opinion, Cineplex remains an intriguing investment option for long-term investors seeking income.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Demetris Afxentiou has no position in any stocks mentioned.  

More on Dividend Stocks

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

edit Woman in skates works on laptop
Dividend Stocks

3 No-Brainer Stocks to Buy Under $30

These three stocks all offer a huge deal for investors looking for dividends, as well as growth that will last.

Read more »

You Should Know This
Dividend Stocks

How to Convert a $300 Monthly Investment Into $338 in Monthly Income

If you want a certain amount in monthly passive income, invest a similar amount today and leave the rest to…

Read more »

Increasing yield
Dividend Stocks

3 Income Stocks With Big Yields to Consider in April 2024

If you haven’t yet made your March investments, here are three income stocks to buy the dip and lock in…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

RRSP Investors: Don’t Miss Out on This Contribution Hack!

This hack has so many benefits for you -- not just when you put it in your RRSP but for…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

Passive Income: 2 Safe Dividend Stocks to Own for the Next 10 Years

Dividend stocks such as Manulife and Fortis can help you generate a stable and recurring passive-income stream.

Read more »

Young woman sat at laptop by a window
Dividend Stocks

3 Dividend Stocks Everyone Should Own for the Long Haul

For investors looking for top-tier dividend stocks to buy and hold for the long term, here are three of my…

Read more »

Payday ringed on a calendar
Dividend Stocks

3 Dividend Stocks That Pay Me More Than $54.57 Per Month

These three dividend stocks have done me well over the years, so let's look at how much I've gotten in…

Read more »