Movie Theaters and Hotels for an Uncertain Future
Eric is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The Marcus Corporation (NYSE: MCS) offers a decent dividend payout and a resilient business model. This company owns both hotels and movie theaters, so it benefits from diversification. Marcus has a limited geographic footprint, with many of its properties in the Midwest, so it has room to expand. The company has also invested in modern theater technology, such as 3D-capable screens. Marcus could be a better long term pick than a company that specializes in either hotels or movie theaters.
Movie theater customers frequently complain about high ticket prices, but a movie may still cost less than other entertainment options. An individual who might stay at an expensive resort during good economic conditions might stay in town and watch a movie during bad economic conditions. A resort hotel might achieve higher profits during a boom, but a movie theater chain might actually do better in a bust.
Fiscal 2009 results from Regal (NYSE: RGC) and Marriott (NYSE: MAR) showcase the effects of a deep recession. Regal reported 7.6% higher revenue in 2009, and its total revenue increased to $766 million. In addition, Regal noted that 2009 was a good year for the movie industry, in general. 2009 didn't go so well for hotels. Marriott reported -15% revenue growth for the year, and its income shrank from $359 million in 2008 to -$346 million in 2009.
Marcus' fiscal 2009 results show that diversification did provide some downside protection. The company posted 3.3% overall revenue growth for the year, although its net income dipped 16%. The company's hotel business reported 10.1% lower revenue per available room (REVPAR), but its movie business reported 18.9% revenue growth.
Marcus offers a substantial, and still sustainable, dividend. Inverting a P/E ratio gives a company's earnings yield. A company that has a 15 P/E has an earnings yield of 6.67%. Dividing a company's dividend yield by its earnings yield gives the company's payout ratio, which is the percentage of income that the company distributes to its shareholders each year. Marcus' 2.7% forward dividend yield and forward P/E of 15 produce a forward payout ratio of 40%.
Marriott's dividend also looks sustainable, but it's smaller. Marriott has a 1.7% forward dividend yield and a forward P/E of 16, which results in a forward payout ratio of 27%. Regal boasts a bigger dividend than the hotels, but this movie theater chain's payout ratio looks very high. Regal has a 5% forward dividend yield and a forward P/E of 16, which produces an 80% forward payout ratio.
Marcus also wins the book value comparison with Regal and Marriott. Only one of these companies has a positive book value right now. Marcus has a book value per share of $11.19, and its share price was $12.51 at the end of the day on June 25, 2013. Regal has a book value per share of -$4.55, and Marriott has a book value per share of -$4.45.
Marcus posted a net loss this quarter because of items, but the company still achieved top-line growth because its hotel business performed well. Marcus reported 1.7% overall revenue growth for the third fiscal quarter of 2013, and its hotel segment reported 12.3% revenue growth. The company recorded a -$2 million impact because of a lawsuit and impairment costs, which resulted in -$1.37 million net income for the quarter.
Marriott's results show that the hotel industry has recovered from the recession, and conditions look more favorable now. This hotel chain reported 14.9% higher sales and 30.8% higher income for the quarter. Marcus does business in 11 states while Marriott has hotels throughout the world, so Marriott's North American results could provide a closer comparison. Marriott reported 5.8% higher REVPAR for the quarter, while Marcus reported 10.7% higher REVPAR.
Marcus explained that its movie segment faced a tough comparison this quarter because it had more popular movies available last year. Movie theaters may have also faced a difficult market this spring in general. Regal reported -6.1% revenue growth and -51.4% income growth for the quarter, and the theater chain described the overall business environment as challenging.
Marcus' combination of movie theaters and hotel properties could perform in a wide variety of economic conditions, which is very important for a dividend stock. Marcus' third quarter didn't go so well, but a few hit movies could put this company in a much better position. This theater and hotel owner also classified some major recent expenses as items, so its margins could improve. A weak third quarter may mean a good deal on this stock.
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Eric Novinson has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!