Cineplex (Cineplex Stock Quote, Chart TSX:CGX) shareholders have had a rough ride over the past couple of years, with the stock losing more than half of its value since mid-2017. But the bumpy journey is just the nature of the game for CGX, whose fortunes depend on box office returns and thus on the quality of films it shows, says Andrew Pyle of Scotia Wealth Management, who claims that there are better names to choose from in the dividend category.
Pity the poor movie house in an age when streaming services are snatching up Oscars and viewers are happier sitting on their couches than standing in line to buy overpriced popcorn. Cineplex has made efforts to raise its revenues per patron by diversifying its product offering, but attendance numbers continue to slip, as witnessed in the company’s year end financials delivered on February 15, where theatre attendance for 2018 dropped 3.2 per cent, which followed on 2017’s attendance decline on 2.1 per cent.
Still, the company posted yearly gains in both box office revenues per patron and concession revenues per patron, showing that once they have them in the building, Cineplex is skilled at separating people from their money.
“Cineplex reported record annual results for 2018,” CEO Ellis Jacob said recently. “Total revenue increased 3.8 per cent to $1.6 billion and adjusted EBITDA increased 8.7 per cent to $256.4 million, as our diversification initiatives continue to build scale and show more meaningful returns and we continue to focus on managing our costs.”
And let’s not forget that dividend, which currently stands at an alluring 6.99 per cent annually.
But despite the company’s strengths, like the airlines, too much is riding on extraneous factors, in Cineplex’s case, how good/bad its annual stock movies is.
“Cineplex is one of those stocks where you just want to pull your hair out at night when you go home, in terms of where it is and why it is there,” says Pyle, portfolio manager for Scotia Wealth, to BNN Bloomberg on Monday. “This is a stock that very much plays the movie pipeline. If you have a good movie pipeline one season, the stock does great. You get a few box office disappointments and the stock just doesn’t moderate, it falls out of bed.”
Last year was a prime example, as the stock was picking up steam over the second half of 2018, climbing more than 26 per cent between early August and early November. Then in mid-November as investors responded to weaker quarterly numbers, it promptly lost all of those gains plus more in a matter of a few days.
“We’ve had Cineplex in our portfolio from time to time. We’ve gone in and we’ve come out,” says Pyle. “Yes, it’s a good dividend payer and it increases its dividend. These are good things we to look for in a stock and in our portfolio, but it’s just not one of those stocks for me right now,”
“To me, there are better options out there in the dividend growth space where you don’t have to flip-flop as we have had to do with Cineplex,” he says.