How do you generate high and consistent income in a low interest rate world? And more importantly, h...
When the Going Gets Tough, Have FUN
04/12/2018 5:00 am EST
Readers in Canada can be excused if they are scratching their collective heads over antics of the irrational administration in Washington, asserts Canada investing expert Glenn Rogers, contributing editor of Internet Wealth Builder.
After the massive tax cut was pushed through late last year I thought we would have a few months of solid market performance based on a sugar high brought about by these highly simulative tax programs.
But after that, things look bleak. I believe that in 2019 and 2020 we will start seeing the deficit explode. The pace of interest rate increases will accelerate, and the combination could tip us into a recession.
In these circumstances, we want to find stocks that are somewhat protected from the vicissitudes of this administration and won't be affected by trade wars and heaven knows what else.
So, against that disturbing backdrop what do you do to make some money? Well, when the chips are down let's try and have some fun. As Warren Buffett said recently, don't watch the market, just take the kids out for some ice cream.
As it turns out, we have just the stock that fits that advice, one with the perfect trading symbol; the company is Cedar Fair LP (FUN). The company is in the theme park business with 13 parks throughout the U.S. and one near Toronto: Canada's Wonderland.
They also have five hotels adjacent to their parks with 1,600 rooms. As well, they own 1,400 acres of undeveloped land adjacent to their parks for future expansion.
Many of you will have heard of Knots Berry Farm, which is located beside Disneyland in Anaheim, California. That's one of their properties. Think of Cedar Fair as a junior Disney in some ways, without the media properties and international exposure. The company offers 850 rides and 120 roller coasters and attracts more than 25 million visitors annually.
Last year, the company had record revenues and attendance. Net revenue was $1.32 billion, with adjusted EBITDA of $479 million. Cedar Fair logged 27.7 million visitors and out of park revenues of $144 million.
Overall the company has enjoyed steady growth with a long history of paying dividends, which they are committed to grow by 4% every year.
However, a word of caution to Canadian readers. The company is set up as an Master Limited Partnership, which allows for a tax efficient return of capital to U.S. shareholders but may pose some tax problems for Canadians. Therefore, I strongly advise Canadian residents to discuss the tax implications of buying shares with their financial advisor before acting.
At current prices the stock yields 5.57% Additionally, Theme Parks are expensive to construct so there is a high barrier to entry.
The company's parks are geared toward middle income people and are situated so customers can drive to their locations. The recent tax bill will generate some additional disposable income for the middle class so that should set Cedar Fair up for a very good 2018.
The stock pulled back a little after the last earnings report because profits were slightly down from the previous year, due largely to extreme weather which kept attendance slightly below budget. I think this is a good entry point for a relatively Trump-proof stock.
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