Cedar Fair Is Worth a Ride With Its Increased Payout

| About: Cedar Fair, (FUN)

I recently wrote an article listing some of my favorite investments with attractive yields. Cedar Fair (NYSE:FUN), LP was on that list, and since they had a solid earnings release earlier this month, I thought it might be useful to issue a brief update. Cedar Fair owns and operates nearly a dozen amusement parks with several in Ohio and California. They include Knotts Berry Farm, located not far from Walt Disney Co.'s Disneyland, Dorney Park in Eastern Pennsylvania and others in Canada, Virginia, Ohio, Minnesota and elsewhere. They also own 5 hotels and a several water parks.

Before going further, I should point out the Cedar Fair is a Limited Partnership or LP. LP's do not pay dividends. They pass though earnings to the owners and pay out distributions. They typically issue K-1s and taxes are somewhat more complicated than dividend reporting, although the popular tax software packages like Intuit's TurboTax and H&R Block's At Home handle it easily. There are also some additional intricacies when LP's are held in IRAs.

I usually prefer companies that pay regular quarterly dividends, but there are several reasons that I like Cedar Fair, LP, despite the uneven payout over the course of the year. The most important reason is that management continues to reiterate its intention to pay out $1 in distributions this year and to grow the distribution to $2 per unit by 2013. Strong attendance though the end of July was also good news for long investors.

The attendance throughout July, despite the especially hot weather, high gas prices and a less than stellar economic backdrop, could signal even better results throughout the rest of the year. The company did note on its conference call that their outlook for the rest of the year was conservative, because the comparisons going forward could be difficult:

We have always been very conservative in our projections, but just as a reminder, when we went into September and October last year we had a tremendous, we had tremendous weather, we saw all kinds of attendance records and all kinds of revenue records and it’s going to be very, very difficult to duplicate that in 2011, so we gave ourselves a little bit of a window there and certainly we’re optimistic that we could set a record as I stated in prepared remarks, but we still have to be cautious that – that we could have bad weather in September and October because October has turned out – is a very powerful month for us.'

As I noted, management reiterated its commitment to the cash distributions, stating:

So given the strong results we’ve had, we’ve already said a couple times in the call that we’re very comfortable that we’ll meet our target of a $1.00 per unit during 2011 growing to $2.00 and more by 2013 and we’ve mentioned on prior calls and other information that we would look for a range between $1.35 and $1.65 in 2012.

At the unit's recent price of $19.21, those annual payouts represent some very substantial yields. As I noted, the payouts are not uniform.

2011 Distributions
$0.08 $0.10 $0.12 $0.70

For those willing to put up with the irregular payouts, ready to put their faith in management's ability to deliver on its payout projections and willing to take some risk based on the weather, Cedar Fair is an attractive holding for those in search of yield. And for those of a more whimsical nature, what could be better than an amusement park company that chose the ticker symbol FUN.

Disclosure: I am long DIS, FUN. I have no positions in the other companies mentioned in this article, and no plans to initiate any new positions in the next 72 hours.

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