Why Cedar Fair's Dividend Is Deceiving

| About: Cedar Fair, (FUN)

The title is meant to catch your attention, especially if you are thinking of investing in Cedar Fair, LP (NYSE:FUN) based on a tool used to screen for large dividends and high yields. Cedar Fair went ex-distribution (the distinction between ex-distribution and ex-dividend will be addressed later) on December 1st for $0.70. As a result, the dividend information on Seeking Alpha, Yahoo!Finance, CNBC, Google and even my Schwab account shows an annual dividend yield of more than 12% based on a price in the range of $22-$23 per unit. Technically, I suppose, the yield is correct. The problem is that Cedar Fair will not be paying $0.70 per quarter in 2012.

The quarterly distributions during 2011 will total $1.00 based on payments of $0.08, $0.10, $0.12 and $0.70 over the four quarters. Seeking Alpha, Yahoo and CNBC show an annual payout of $2.80, while Google and Schwab don't show a dollar total. In 2012 the company expects to pay much less than $2.80. On the conference call at the end of Q3, Brian Witherow – Cedar Fair VP and Corporate Controller - responding to a question about the use of cash and the distribution elaborated:

...being able to continue to pay an ever increasing distribution that grows as our operating results grow and is sustainable even in down years is part of the objectives the board has laid out for our cash. That being said, we are in very good shape to do what we committed to in terms of our distribution for next year but we have talked about a range of $1.35 to $1.65. And based upon the results we see this year, I think the expectation can be that we will be on the high end of that range.

Don't misunderstand. The expected yield on this investment is still very good and it is the reason I maintain a long position. A payout of $1.35 - $1.65 will equate to an annual yield of about 6%-7%. It's just not the gaudy 12%-plus yield that most of the sites are showing.

As I noted above, this is not a dividend. Cedar Fair is a Limited Partnership and pays out a distribution instead of a dividend. It also trades "units" rather than shares. Most financial sites - including this one - don't make the distinction. And most investors don't particularly care. The major difference shows up during tax season when an investor receives a Form K-1 rather than a 1099-DIV. The special treatment given to dividends isn't applicable and the K-1 could shelter the payment in a different manner. The major tax software providers - either online versions or PC applications - easily handle most of the differences. (There are some instances where there might be additional complications with state taxes or where the holding is in an IRA.)

Two other quick notes:

  • Late last month Cedar Fair filed an 8-K disclosing it had amended its property sale agreement with JMA Ventures, LLC. The amendment extended the date for JMA to cancel the agreement and the date a required payment must be made. The new right to cancel date has been extended until December 5th and the new date for the additional deposit is December 6th. Both dates bear watching.
  • Both Forbes and Bloomberg use a trailing payout amount, showing $1 over the past year and a trailing yield under 5%.


Those looking for yield should find that an investment in Cedar Fair provides an attractive return - it's just not more than 12%.

Disclosure: I am long FUN.