Make Room for More Income Stocks
Gerelyn is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Now that the International Monetary Fund (IMF) has set the tone for the global economy for the remainder of the year, the uncertainty that Americans have been feeling about their financial futures has just been escalated. With the threat of another recession looming, perhaps now is a good time to revert to some cost-saving behaviors that were the default several years ago -- such as postponing luxurious travel destinations in favor of a “stay-cation.” With more people turning to their own local venues for entertainment, movie stocks represent a sector that appears poised to benefit. Also, several cinema stocks appear to be sitting on heaps of cash, which could bode well for dividend investors in the near future.
Entertainment technology company Imax (NYSE: IMAX) is in growth mode. The 45-year old company has grown its movie theater presence some fourfold around the world over the past several years. It has its sights set overseas, particularly in China and in Russia, where it currently has about 100 and 35 movie screens, respectively. Perhaps more compelling is the backlog of theaters, which is more than 100 in China alone, according to CEO Richard Gelfond’s comments at a recent Goldman Sachs conference.
Overall, Imax has a theater backlog of 280 venues, which the company expects to open over the next several years. Imax is spending on R&D to develop the next wave of theater technology, which is a quantum leap from digital to laser, that it expects will appeal to institutions like the Boston Science Museum.
Imax theaters populate 54 different countries but the company still has aggressive growth plans internationally. It is focused on improving its position particularly in places like Western Europe and Latin America in addition to India, the latter has been a difficult market to penetrate given the dominance of Bollywood films.
In an article in Barron's, MKM Partners' Eric Handler points out that the theater company's presence in emerging markets represents a huge revenue opportunity for Imax given the growth prospects in those regions, especially with an expanding middle class. With growing revenues, Handler expects that Imax's margins are going to improve.
Indeed, Imax is bolstering its cash position amid fees that it earns from DMR (digital media remastering) technology and joint-venture income. With these factors working in Imax's favor, the company -- which only slightly leveraged on its balance sheet -- is soon to be flush with cash. Imax may be considering the possibility of returning value to shareholders with a dividend distribution or possibly repurchasing shares, although Handler points out the company also remains keen on reinvesting in the business.
Imax shares are up about 6% year-to-date, and with a market cap of about $1.3 billion the company has a trailing P/E ratio of about 49%.
Another entertainment company that might have some cash to burn in the near term is National CineMedia (NASDAQ: NCMI). The stock is hovering around 52-week high levels and the company already pays a quarterly dividend of 22-cents per share. Due to some cash on hand, a lack of appealing investment opportunities at the moment, and a sanguine view of the advertising market in the near term; the payout could rise in the not-so-distant future, according to Barron's.
Regal Entertainment Group (NYSE: RGC), which has a presence in some 6,600 movie screens across 37 U.S. states, already pays an annual dividend of $0.84 per share, which represents a dividend yield of 6%. Regal, with a market cap of $2.1 billion, has generated average free cash flow of $250 million for the past five years, according to a recent investor presentation. Regal appears focused on returning value to shareholders and at the very least can boast of a stable and recurring dividend. Whether or not the company will direct its $200 million plus in excess cash toward a dividend hike in the future remains to be seen. The company does seem intent on upgrading much of its existing theater infrastructure to luxury status.
A second recession in nearly as many years would not be good news for anyone and the mere risk of revisiting those economic conditions in it of itself is enough to send shivers down the spines of Americans. Nonetheless, during periods of heightened uncertainty investors can look for unique ways to play the markets and piling up on income-paying movie stocks may be the way to go.
GerelynT has no positions in the stocks mentioned above. The Motley Fool owns shares of Imax. Motley Fool newsletter services recommend Imax. 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.If you have questions about this post or the Fool’s blog network, click here for information.