As in many other industries in which disruptive technological advancements change the landscape of a sector, the cinema business has evolved to a critical point in time in which some have determined it is “now or never” for theatre chains in North America.
Once the pinnacle of profitability and growth, the big screen cinema experience has been looked to as a go-to for first dates, the next big Star Wars blockbuster, or a good time catching up with old friends. Cineplex Inc. (TSX:CGX) investors certainly hope that this will remain the case moving forward.
The reality, however, that online streaming companies such as Netflix, Inc. (NASDAQ:NFLX) may be ruining the show for companies such as Cineplex is a risk factor which is hard to ignore.
Cineplex’s dividend which has breached the 5% yield mark recently, is one which many prominent money managers have looked to as a solid income opportunity in an equities market filled with dividends which are much less stable, supported by companies with balance sheets less pristine than that of Cineplex.
While Cineplex has continued to turn an operating profit, despite declining attendance numbers, the company’s negative levered free cash flow, combined with a dividend payout ratio higher than 100%, suggest to me that the company’s dividend may be unnecessary, if not at danger.
For income-focused investors, I would urge caution with this name, as there are many other high-yielding options available with better growth profiles currently than Cineplex.
Invest wisely, my friends.
