Investing in companies in order to receive a higher than average yield carries with it a different set of expectations for long-term investors. Those receiving a higher than average yield for a company compared to its peers is likely taking on excess risk in exchange for investing in said company, all else being equal.
When looking at the North American cinema space, Cineplex Inc. (TSX:CGX)(NYSE:CGX) is one such company which pops out of the page as a perennial overly-expensive company which now sports a very attractive yield, making this company a poster child for those hopeful of a rebound in the cinema space in Canada.
While a rebound in cinema may be on the horizon, I view the long-term headwinds to the cinema industry as potentially life-threatening rather than a measly "cold or flu" which some have suggested have hit the industry due to underperformance from key blockbuster movies in 2017, and a particularly bad summer movie slate.
Investors buying a company for the next 20 or 30 years need to think about the structural integrity of the given industry a company operates in before buying such a firm. As if you were buying a house, checking out the foundation is the first thing I would do; and on that note, I just don’t believe the foundation Cineplex is standing on is solid at all.
The "Netflix and Chill" phenomenon may not kill the movie industry right away, but I believe it will be a slow and painful death. I would invite investors to avoid this “value” play moving forward, high yield or not.
Invest wisely, my friends.
