STOCK WATCH


A Steady Ride at Cedar Fair Entertainment

Bob Frick

This owner of amusement parks offers investors a reliable cash distribution.



If you're looking for thrills and glitz in the amusement park industry, look no further than Six Flags and Disney. Six Flags (symbol SIX) is like the scariest of roller coasters: Its stock has plunged in the past year. And Disney (DIS) shares have bounced up and down lately amid fears that a recession could hurt attendance at its parks.

But there's one theme-park stock that may excite investors who like the amusement equivalent of a pony ride -- steady and reliable. That's what you get with Cedar Fair Entertainment, a publicly traded limited partnership that yields 8.3%.

As a master limited partnership, Cedar Fair (FUN) distributes most of its cash flow to unit holders. The firm recently bumped up its distributions (technically, they are not dividends) from an annual rate of $1.90 per unit to $1.92.

Cedar Fair owns seven water parks, five hotels and 11 amusement parks, including Knotts Berry Farm in California, Cedar Point in Ohio and Kings Dominion in Virginia. None approaches any of the Disney properties in style and scope, but they're clean, well maintained and don't require a second mortgage to show the family a good time.

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The company's units are pretty cheap these days, too. Off 22% from its 52-week high, Cedar Fair closed February 26 at $23.94.

Concerns about how the softening economy will affect receipts may be one issue pressuring the stock. Conventional wisdom holds that local attractions do better in recessions as people cancel more expensive trips, says Scott Hamann, an analyst with KeyBanc Capital Markets. But the net impact of a recession and the stick-close-to-home effect should be a wash, he says. Skipping Disney World for Cedar Point in Ohio is "probably a tough trade down for the kids," Hamann says, with a laugh, "but you can't beat it for value, especially in Cleveland," where the economy isn't strong.

Investors may also wonder about Cedar Fair's balance sheet and its commitment to maintain and boost the cash distribution. The recent hike in the payout marks the 21st consecutive year of increases, so, Harmann says, Cedar Fair's commitment shouldn't be questioned.

But the analyst also notes that Cedar Fair assumed a fairly heavy debt load when it acquired Paramount Parks in 2006. The firm has about $1.7 billion of long-term debt outstanding, representing a whopping 83% of total capital.

Harmann says he's confident that cash flows can cover the distributions and the debt service. He adds, though, that Cedar Fair has options for paying down the debt more quickly, if necessary. Those include unloading some of its parks and selling parcels of undeveloped land.

Cedar Fair isn't a super-fast grower. The company projects a 3% rise in revenue in 2008, from $987 million. It lost $4.5 million, or 8 cents per unit, in 2007 because of the Paramount acquisition and downsizing of its Geauga Lake amusement park, in Ohio. However, Cedar Fair should swing back to profitability in 2008 - analysts expect it to earn $1.09 a unit.

So, for excitement, hop Cedar Point's Wicked Twister. But for steady income, buy FUN before the rest of the market catches on to this cheap thrill. Before you invest, though, be aware that MLPs can present potential tax hassles, even in retirement accounts.




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