Analysts have been going back and forth on whether or not Cineplex (TSX:CGX) is a good buy or not for months now.
The stock has had to prove it can transition away from “just” a movie theatre and become an entertainment hub.
But there’s one thing analysts may not be mentioning that’s absolutely worth your time and money: this stock’s dividend.
At 7.15%, it should pretty much be a no brainer to invest in this stock, but let me give you a few reasons why the dividend alone isn’t the only reason to invest in Cineplex.
Cineplex isn’t suffering
While many analysts worry this stock’s time is coming to an end, Cineplex’s earnings report would be the first place to prove them wrong. The most recent earnings in February came in at $428.18 million for the quarter, beating analyst expectations of $425.40 million.
This comes from a great management team that’s doing all the right things to diversify. Right now, the box office still makes up 75% of this company’s revenue. But Cineplex has started expanding into multiple areas to bring back theatre goers.
Let’s be clear: Cineplex has a tough road ahead. It’s hard to compete with streaming services like Roku and AppleTV for a few movies. Why go to the theatre when you can wait a couple months and see those same movies for $10 a month?
But as I’ve mentioned, management has realized this is a problem. Cineplex has since expanded into a number of areas beyond simple movies. Theatre attendees can now visit Cineplex and see a ballet performed at the MET, watch the Super Bowl, see the most recent Game of Thrones episode, or even take part in a video-game tournament.
Then there’s the movie-going experience itself. Cineplex VIP has been a massive hit, expanding across Canada at a rapid pace. Rather than go to dinner and risk being late for the movies, you can now order and eat in your seat. Oh yeah, and you can buy booze now. That doesn’t hurt either.
Arguably the most exciting upcoming project is Cineplex’s Rec Room initiative. Cineplex has opened several Rec Rooms, but the plan is to eventually have 10-15 across Canada.
The Rec Room offers dining, live entertainment, group celebrations, corporate events, and amusement “gaming experiences” that includes luxury bowling and axe throwing.
2018 was bad
There’s no doubt about it, but part of that can be put on Hollywood. It just wasn’t a blockbuster year, but that should change this year. 2019 has already started out strong with Captain Marvel, and Cineplex’s website even shut down from people purchasing Avengers tickets online. And it’s only April. Coming up this year will also be Frozen, Toy Story, Star Wars, and James Bond, which should see the box office hit new records.
This stock should see a steady rebound over the next year, and right now it’s trading at $24.30, making it undervalued at a fair-value price of about $28. Given that last November this stock reached the $35 range, investors really shouldn’t be surprised to see this stock steadily increase after the next earnings release, especially with Avengers as a headliner.
As for the dividend, Cineplex has increased or maintained its dividend every year since 2003. It’s climbed every year since 2011 with a five-year dividend-growth rate of 4.1%. So, with a low share price and a 7.15% dividend, you really can’t go wrong with this stock.
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 Amy Legate-Wolfe has no position in any of the stocks mentioned.