Monday, August 14, 2006

Stock Blog of the Week: Contrarian Edge

Dividends on the Ride Down

August 11, 2006 - The Motley Fool
By Vitaliy Katsenelson, CFA
As I began analyzing amusement-park operator Cedar Fair (NYSE: FUN), it reminded me of a computer game that I used to play called Rollercoaster Tycoon, because I felt like I was on a roller coaster when debating whether to open a position in this company.

Cedar Fair is known as a pure-play, profitable, well-managed company that has paid and raised dividends every year for the past 19 years. Though competitor Six Flags (NYSE: SIX) is a pure-play amusement-park operator as well, it lacks all of the other qualities that Cedar Fair brings to the table -- it is buried in debt, and its cash flow reminds me of its wilder coaster rides.

Then, several months ago, Cedar Fair revealed its plans to purchase all six Paramount Parks from CBS for a tidy $1.25 billion. That announcement shocked investors, who were attracted to Cedar Fair for its reputation as a relatively low-risk and stable dividend-payer. The stock fell from the low $30s to the mid-$20s, while the dividend yield rose from 6% to 7.6%.
Being a sucker for a dividend, I decided to take a peek at the stock. I wanted to find out whether the sell-off was warranted.

The upside of the roller coasterI also knew that...

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