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Six Flags is a Great Dividend Stock and Maybe More

Posted on Tuesday, November 19th, 2019 by Chris Markoch

Six Flags is a Great Dividend Stock and Maybe More

I love amusement parks. I hope I never outgrow the thrill of a rollercoaster and the ability to turn back the clock if only for a few hours or days. But investing in roller coaster stocks such as Six Flags (NYSE:SIX) is not child’s play.

With the exception of Disney (NYSE:DIS) which is a year-round destination, theme parks are a seasonal business. For a good portion of the year, these parks can sit idle. That means there’s a small window for these companies to generate revenue and those all-important earnings.

That’s one reason that some institutional investors and analysts are a little sour on Six Flags stock right now. The company posted disappointing third-quarter earnings which is historically their best season. The company’s earnings per share (EPS) came in at $2.11 per share, a 2% year-over-year (YoY) decrease. But the news was not all bad. Revenue was $1 million higher YoY at $621 million. The company said the increase in revenue was largely due to a 3% increase in attendance. However, guest spending per person was down 58 cents YoY to $42.44.

So with the economy still showing no signs of an imminent recession and Six Flags showing pedestrian growth, why should investors consider the stock? I have a few reasons.

First, it’s a reliable dividend stock

It’s tempting to look at Six Flags for its dividend yield. But dividend yield can be deceiving. A dividend yield will increase when the stock price falls. Conversely, it will fall when the stock price rises. The key is to look for with dividend stocks is a dividend that stays consistent or increases on an annual basis. The other thing to look at is the payout ratio. The payout ratio lets investors know how much of their earnings the company is paying out as their dividend.

Since 2010, Six Flags has given shareholders over $3.7 billion in equity in the form of dividends and share repurchases.

The company recently declared an 83 cent per share quarterly dividend. That is a 1.2% increase from their previous quarter dividend of 82 cents per share. It also makes it nine straight years that Six Flags has increased their dividend. Six Flags currently has a dividend yield of 7.12%.

The company’s payout ratio is 101.55% based on trailing 12 months of earnings. This would imply that the company pays out more than their 100% of its earnings as a dividend. However, the payout ratio based on cash flow is 68.24%. Another thing to consider is that the over the past 13 years, the company’s median payout ratio has been 1.35% of trailing 12 months earnings.

This is just a reminder that dividend yields and payout ratios have to be looked at in the context of the overall industry.

Second, it has a low P/E ratio

The price-to-earnings ratio (P/E ratio) is a fundamental metric for evaluating a stock. To calculate P/E ratio, divide the stock price by the company’s earnings per share (EPS). A P/E ratio should be evaluated in comparison with other stocks in its sector and then to the broader market with a benchmark to an established index such as the S&P 500.

In the case of Six Flags, the P/E ratio is around 14 as of this writing which is low compared to the sector. Cedar Fair, L.P., for example, has a P/E ratio of over 21. And Sea World (NYSE:SEAS) has a P/E ratio of over 22. What does that mean? It means that investors have low expectations for stock price appreciation. This may not be great news for growth investors. However, value investors will appreciate the stock’s relatively low cost as well as the stable dividend.

Third, Six Flags has seemed to learn from past mistakes

One of the reasons, Six Flags stock dropped was because management dismissed rumors that the company was going to buy competitor Cedar Fair (NYSE:FUN).  Cedar Fair owns various theme parks including Cedar Point in Ohio. Analysts were disappointed by what they viewed as the loss of another potential revenue stream. However, the financial crisis of 2007 pushed Six Flags into bankruptcy. The reason? The company had aggressively grown through acquisition. But in order to finance those acquisitions, the company added high-yield debt.

By eschewing the acquisition of Cedar Fair, SIX management seems to be indicating they will not pursue a “growth at all cost strategy”.

What’s next for Six Flags stock?

Investors were justifiably disappointed in the company’s lackluster earnings report. However, the stock found support at its 52-week low and, for now, is showing some growth. It’s encouraging to note that the company saw a rise in attendance in a strong economy. Typically, theme parks like Six Flags see a growth in attendance when the economy starts to sour. This is because consumers who may have looked at a Disney vacation may instead trim back their plans and opt for a Six Flags trip instead.

So that means the company and the stock seem to be set up pretty well regardless of the direction of the economy. And with that nice dividend sitting there, Six Flags deserves consideration in a value investor’s portfolio.

Companies Mentioned in This Article

CompanyCurrent
Price
Price
Change
Dividend
Yield
P/E
Ratio
Consensus
Rating
Consensus
Price Target
SeaWorld Entertainment (SEAS)$29.39+0.8%N/A28.81Buy$31.71
Cedar Fair (FUN)$54.40+0.1%6.88%18.01Buy$62.00
Walt Disney (DIS)$147.81flat1.19%25.62Buy$155.95
Six Flags Entertainment (SIX)$44.05+0.5%7.54%13.64Buy$60.13

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