Stock of the Month: SIX

Six Flags Entertainment (SIX) may sound like the last thing you want more of right now – a rollercoaster ride – but its position as a real estate investment trust (REIT) requires the company to distribute most of the profits from its network of 18 amusement parks to shareholders. The stock has regained some momentum over the last few months, but these shares are still so deeply depressed that this quarterly profit distribution now translates into an attractive annualized 5% yield – with the next installment coming in February 2015.

With that math on the table, the risk of owning this stock simply revolves around the company’s ability to keep bringing crowds to its parks. Plus, management’s current guidance of 10% revenue growth over the next few years is a bit on the conservative side, as Six Flag’s shift from a pay-per-day model to a monthly membership model should encourage repeat customers while boosting overall revenue at the same time.

And the current macro environment should provide a boost as well. As gas prices have plunged 20% in the last 12 months, many families should be encouraged to take longer road trips and spend a little more on the destination-type fun rather than simply feeding the fuel tank.

Wall Street currently expects SIX to double its earnings numbers by 2016, which will not only support the dividend but also free up cash to actually increase the amount of money flowing to shareholders. Remember, this is all organic growth as the existing parks move toward the monthly model, so the company won’t be expanding its debt load in order to acquire and develop a lot of new property.

These shares move on a seasonal cycle, which shouldn’t surprise any investor that’s familiar with the amusement park calendar. February through June is the typical rally season for SIX, as it is the early busy season for its Sun Belt properties. The time to buy these shares is now upon us, so I recommend you buy SIX below $42.50 and get ready to pocket that spectacular dividend and ride the stock higher.