Contrarian Investors: Get Paid to Wait with an Unloved Stock Yielding 6%

Cineplex (TSX:CGX) is down significantly over the past year, but the pullback might be overdone.

| More on:

Youโ€™re reading a free article with opinions that may differ from The Motley Foolโ€™s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Contrarian investors are constantly searching for out-of-favour stocks that might offer a shot at some nice upside when market sentiment improves.

Ideally, these stocks also pay attractive dividends that put solid returns in your pocket while you wait for better days.

Letโ€™s take a look at Cineplex Inc. (TSX:CGX) to see if it is an attractive pick today.

Troubled times

For years it seemed Cineplex could do no wrong, cranking out solid results and boosting its dividend as movie fans gobbled up treats and packed the theatres to watch Hollywoodโ€™s best on the big screens.

Then the Internet got fast enough for most people to stream movies online and things started to go off the rails โ€” or thatโ€™s what one would think by looking at the stock price over the past year. Cineplex currently trades for $28 per share at the time of writing, as compared to $50 last summer.

Falling attendance is certainly an issue. Whether the streaming companies are fully to blame is up for debate. Part of the reason might be that the movie industry is in a rut and needs to adjust its content to appeal to a new movie-going demographic.

Opportunities

On the positive side, Cineplex is more than just an operator of movie theatres, and the portfolio of other businesses, including digital commerce, amusement solutions and eSports might not get the respect it deserves.

For example, Cineplex supplies digital menu screens in most fast food restaurants. The division continues to expand its reach, including a new contract with Arcos Dorados, the worldโ€™s largest McDonaldโ€™s franchisee, to provide digital menu board solutions in Brazil, Argentina, and Uruguay.

The numbers

Cineplex reported Q1 2018 total revenue that dropped by 0.9% from the same period last year. Attendance dipped 9.3%, which isnโ€™t great, but the average box office and concession spend per person increased to record levels.

The company is working through a restructuring process that has reduced headcount, and which should result in $25 million in annualized cost savings.

Dividend growth

Cineplex raised its dividend by 3.6% earlier this year, so management canโ€™t be too concerned about cash flow. The monthly dividend of $0.145 per share provides a yield of 6%.

Should you buy?

The industry is changing, but calls for the death of the movie theatre might be premature. Cineplex a contrarian bet, but the dividend looks solid, so you get paid well to wait for better days.

That said, I would wait for the Q2 numbers to come out before buying the stock. A positive quarter might signal the bottom, while a weaker-than-expected result could provide a chance to get in at a better entry point.

Should you invest $1,000 in Air Canada right now?

Before you buy stock in Air Canada, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy nowโ€ฆ and Air Canada wasnโ€™t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the โ€œeBay of Latin Americaโ€ at the time of our recommendation, youโ€™d have $21,058.57!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month โ€“ one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 38 percentage points since 2013*.

See the Top Stocks * Returns as of 2/20/25

This article represents the opinion of the writer, who may disagree with the โ€œofficialโ€ recommendation position of a Motley Fool premium service or advisor. Weโ€™re Motley! Questioning an investing thesis โ€” even one of our own โ€” helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Walker has no position in any stock mentioned.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? Youโ€™re not alone. At The Motley Fool Canada, we get it โ€” and weโ€™re here to help. Weโ€™ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Dividend Stocks

Caution, careful
Dividend Stocks

Sell-Off Alert: Why These TSX Blue-Chip Stocks Look Undervalued Now

These TSX stocks look mighty valuable right now, and come with outlooks that make each prime for the picking.

Read more ยป

dividends can compound over time
Dividend Stocks

Want a 6% Yield? 3 TSX Stocks to Buy Today

These TSX stocks offer yield of over 6% and are well-positioned to sustain their payouts and maintain consistent dividend payments.

Read more ยป

clock time
Dividend Stocks

10 Years From Now, Youโ€™ll Be Glad You Bought These Magnificent TSX Dividend Stocks 

A decade from now, these 2 dividend stocks could give you strong returns through dividends or capital appreciation, or both.

Read more ยป

Silver coins fall into a piggy bank.
Dividend Stocks

TFSA: 3 Top-Tier TSX Stocks for That $7,000 Contribution

The market is full of great long-term stock to fuel your TFSA. Hereโ€™s a look at three top-tier TSX stocksโ€ฆ

Read more ยป

A plant grows from coins.
Dividend Stocks

3 Top Growth Stocks to Buy for March

These three growth stocks might be excellent holdings to add to your self-directed portfolio this month.

Read more ยป

dividends can compound over time
Dividend Stocks

Sell-Off Opportunity: Why This Beaten-Down Canadian Stock Could Rebound

Nutrien stock might be down now, but long-term investors will certainly reap some major rewards.

Read more ยป

man in suit looks at a computer with an anxious expression
Dividend Stocks

U.S. Stock Market Correction: Hereโ€™s Where We Stand

U.S. stocks are pricey. Canadian stocks like Alimentation Couche-Tard Inc (TSX:ATD) are less pricey.

Read more ยป

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

Market Correction Coming? These 2 Defensive Stocks Can Protect Your Portfolio

When it comes to essential defensive stocks, these two take the top spots.

Read more ยป