Nov 142011
 

This idea came to me after watching an episode of The Big Bang Theory in which Leonard and Penny bicker about which movie they should see. Morale of that episode seems to be that guys are willing sit through boring movies with their girlfriend if it means they can score afterwards. I did a little research on the whole film distribution business and found that Cineplex Inc (TSE:CGX) practically has a monopoly in Canada.

After further scrutiny I put about $2000 into this company. I purchased 80 shares at $25.28/share. I think this will be a very good investment in the long run. They serve over 70 million guests every year and operate all the largest theaters in the country like Famous Players, SilverCity, Scotiabank Theatres, and IMAX. They make serious doe from concession sales as well. 85% margin on popcorn and drinks! And they are still growing and opening up new locations.

Their financials hold up nicely too. A long track record of solid earnings, a 5% dividend yield, and 50% payout ratio. What does that mean? Well, even if the economy and Cineplex’s earnings stagnate forever then one year from now this company will still be worth 10% more than today. Even if it drops in the short term, no big deal, I’m getting paid $100 in cash every year just for holding on to it. Patience begets wisdom. Or was it the other way around?

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3 Comments on "Let’s go Watch a Movie – Investing in Cineplex"

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Ron Thompson
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Yep, those dividend payments really are great. Especially when interests rates are so low, it may make sense in some cases to take out a line of credit on the house, by shares in some asset that pays a greater yield rate, and then wait for the capital appreciation 🙂

Liquid Independence
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Great point Ron. Looks like interest rates are not going higher any time soon. Once I have built up more equity in my home, I might just use a home equity line of credit to invest.

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[…] not to do is just as important as deciding what to do. If investing in profitable companies such as Cineplex, and Mondelez is how I’m generating profits each year, then not buying lousy investments is […]

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