An Undervalued High Dividend Stock With Big Dividend Growth Since 2010 And More Ahead In 2014

This week's focus stock has had its ups and downs in recent years because of the consumer-driven nature of its business. Due to its current 5.80% dividend yield, we've added this stock to the Consumer Discretionary section of our High Dividend Stocks By Sectors Tables.

Profile: Cedar Fair, LP, (FUN), is a publicly traded partnership headquartered in Sandusky, Ohio, and one of the leading amusement-resort operators in the world. The Company owns and operates 11 amusement parks, three outdoor water parks, one indoor water park and five hotels.

Its operations are located in 13 of the 25 largest metropolitan statistical areas in the U.S. and Toronto, Canada, and serve more than 150 million people. (Source: FUN website)

If you believe that the US economy will continue to improve in 2014, and carry the entertainment-seeking consumer along with it, FUN is worth a look as a way to profit from this scenario.

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Dividends/Distributions: FUN's yearly distribution history over the past 5 years looks a bit like its famous roller coaster, the Twin Racer, dropping from $1.92 in 2008, all the way down to just $.25 in 2010, and then screaming back up, over 900%, to $2.575 in 2013:

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FUN raised its last quarterly payout by 12%, to $.70, from the previous quarter's $.625. CEO Ouimet stated on the company's Q3 earnings release that the distribution raise "reflects our confidence that our cash flow will be more than sufficient to maintain this distribution amount into 2014, while also allowing us to strategically invest in our business to support long-term growth." (Source: FUN website)

FUN pays a quarterly distribution, based upon the previous quarter's performance, and has paid out $1.95 for the first 3 quarters' earnings in 2013. At the new quarterly $.70 rate, FUN's dividend yield is 5.80%, and its projected $2.80 payout in 2014 is 8.74% higher than its 2013 payout:

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Options: Like many of the focus stocks in our articles, FUN has options. However, at present, only its call premiums have high enough yields to be added to our Covered Calls Table. As of yet, we haven't added FUN's puts to our Cash Secured Puts Table.

This June 2014 trade has a strike price of $50, with a call premium of $1.30, slightly below FUN's projected $1.40 dividend payouts over the next 2 quarters.

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We've listed the 3 main scenarios for this approximately 6-month trade. The $1.70 potential assigned price gain more than covers you for any dividend loss, should FUN's shares get assigned/sold away prior to the ex-dividend dates:

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Earnings: The average analyst 2014 EPS forecast for FUN is $3.14, for growth of over 35%, which gives FUN a low 2014 PEG of .60, making it appear undervalued on a PEG basis:

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FUN has also shown quarterly year-over-year improvement in both its EPS and revenue figures for the past three quarters:

More Valuations: FUN's trailing P/E is richer than industry averages, but, due to the strong 2014 EPS growth projections, its forward P/E looks much cheaper. It commands a much higher Price/Book, and an average Price/Sales. FUN's EV/EBITDA ratio is 10.23, vs. 13.44 for SeaWorld, (SEAS) and 12.02 for Carnival, (CCL).

Financials: FUN relies much more on debt than equity to finance its operations - its debt/equity ratio is much higher than its industry's, but its average share count has remained steady, at between roughly 59 to 60 million since 2009, hence its much higher than average 63%-plus Return On Equity. Its Interest Coverage ratio is 2.98, and its Current Ratio is in line with industry averages:

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Disclosure: Author had no positions in any of the stocks mentioned in this article at the time of this writing.

Disclaimer: This article was written for informational purposes only.

Source: An Undervalued High Dividend Stock With Big Dividend Growth Since 2010 And More Ahead In 2014

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in FUN over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More...)

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