Cineplex Stock: Will Dividends Ever Return?

Cineplex (TSX:CGX) stock remains cheap, but does a post-pandemic future mean investors can ever look forward to dividends again?

| More on:
movies, theatre, popcorn

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

One of the main reasons investors were interested in Cineplex (TSX:CGX) before the crash was its dividend. Shares of the company soared to all-time highs before the pandemic hit, with the dividend yield at 5.31%. Investors before the crash saw Cineplex stock as a solid long-term dividend investment, as who would stop going to the movies?

However, today is far different. Even before the crash, things changed. As of February 2020, Cineplex stock stopped all dividends. So, with the pandemic almost on its way out and patrons returning to the movies once more, how likely is it that Cineplex stock will return dividend payments?

Cineplex stock: A brief history

Let’s look back at before the pandemic. I’d like to say that things were completely rosy for Cineplex stock, as that would mean the end of the pandemic would be an end to share slumps. But that’s simply not the case.

Cineplex stock was already considered a risky investment, as streaming services edged in on revenue. Streaming services end up costing less per month than one single movie ticket. Another problem is that consumers can simply watch movies at home through these services. So, theatre attendance was already declining. Cineplex stock had to evolve or fail.

Economists have stated that the company needed to redefine its image as a movie theatre. Today, consumers may want a high-end experience that doesn’t simply offer every movie out there. Instead, there are certain movies you just need to see on a big screen, such as the Avengers films. But the company also dove into Opera performances and sports to push the experience. And before the crash, the company started looking at 4DX to offer audiences with sensory points. 3D films were the start, and virtual reality theatres could still be the future — that is, if Cineplex stock can afford it.

Drowning in debt

The company’s investments in 4DX and its Rec Room spaces put Cineplex stock in massive debt. As of writing, Cineplex stock has $1.9 billion in debt. That’s actually down from the $2.05 billion in debt it had back in September 2019. But revenue continues to drop, most recently by 88% year over year. Until the company can offer a full experience for patrons, with the pandemic well behind it, it’s unlikely to see a substantial increase in revenue.

Meanwhile, shares have collapsed since theatre attendance shrank by 95% during the pandemic. Shares fell by a whopping 74% from peak to trough during the March 2020 crash. Since then, shares have only climbed back by 51%. That’s still far off from those pre-pandemic peaks.

So, where does that leave Cineplex stock with its dividend for investors? Out of luck. With so much need for research and development, this company is not the stable investment it once was. Investors feel far better putting cash towards a company that’s investing in a revenue stream, rather than dishing out dividends.

Bottom line

Movie theatres will be around in the future — that is a certainty. Cineplex stock is likely to continue on as Canada’s largest movie theatre chain. But if investors are hoping that dividends will make a comeback, I’m afraid that won’t be for years and years to come.

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. The Motley Fool recommends CINEPLEX INC.

More on Dividend Stocks

Happy family father of mother and child daughter launch a kite on nature at sunset
Dividend Stocks

Parents: Here’s Every Credit and Benefit You Can Claim From the CRA

Parents have it hard already, so make sure the CRA is doing everything for you by dishing out payments you're…

Read more »

edit Colleagues chat over ketchup chips
Dividend Stocks

3 Canadian Dividend Stocks to Buy and Hold for Life

These dividend-paying stocks have solid earnings base to support their payouts for decades.

Read more »

A golden egg in a nest
Dividend Stocks

Create a Million-Dollar TFSA With Just $1,000

If you have a TFSA, you can easily make a million-dollar portfolio by investing on a consistent basis in this…

Read more »

Dollar symbol and Canadian flag on keyboard
Dividend Stocks

3 Canadian Stocks With Over 6% of Dividend Yield

Boost your passive income with three safe dividend stocks.

Read more »

TFSA and coins
Dividend Stocks

TFSA Pension: 2 TSX Dividend Stocks to Buy Now and Hold for Decades

These top TSX stocks pay great dividends and look cheap to buy right now for a TFSA retirement fund.

Read more »

IMAGE OF A NOTEBOOK WITH TFSA WRITTEN ON IT
Dividend Stocks

TFSA Dividend Income: 2 TSX Stocks to Buy on the Pullback

These TSX stocks look oversold and pay attractive dividends that continue to grow.

Read more »

oil tank at night
Dividend Stocks

1 Top TSX Energy Stocks for Summer 2022

TSX energy stocks have tanked recently, but they could enjoy a nice summer rally. Here's one top stock I'm eyeing…

Read more »

TIMER SAYING TIME FOR ACTION
Dividend Stocks

Market Correction: 2 Cheap TSX Dividend Stocks to Buy Now for a Self-Directed RRSP

These top TSX dividend stocks look cheap right now for a self-directed RRSP focused on total returns.

Read more »