The Marcus Corporation (MCS), Regal Entertainment Group (RGC), Marriott International Inc (MAR): Movie Theaters and Hotels for an Uncertain Future

The Marcus Corporation (NYSE:MCS) offers a decent dividend payout and a resilient business model. This company owns both hotels and movie theaters, so it benefits from diversification. Marcus has a limited geographic footprint, with many of its properties in the Midwest, so it has room to expand. The company has also invested in modern theater technology, such as 3D-capable screens. Marcus could be a better long term pick than a company that specializes in either hotels or movie theaters.

Resilience

Movie theater customers frequently complain about high ticket prices, but a movie may still cost less than other entertainment options. An individual who might stay at an expensive resort during good economic conditions might stay in town and watch a movie during bad economic conditions. A resort hotel might achieve higher profits during a boom, but a movie theater chain might actually do better in a bust.

Fiscal 2009 results from Regal Entertainment Group (NYSE:RGC) and Marriott International Inc (NYSE:MAR) showcase the effects of a deep recession. Regal reported 7.6% higher revenue in 2009, and its total revenue increased to $766 million. In addition, Regal noted that 2009 was a good year for the movie industry, in general. 2009 didn’t go so well for hotels. Marriott reported -15% revenue growth for the year, and its income shrank from $359 million in 2008 to -$346 million in 2009.

The Marcus Corporation (NYSE:MCS)’s fiscal 2009 results show that diversification did provide some downside protection. The company posted 3.3% overall revenue growth for the year, although its net income dipped 16%. The company’s hotel business reported 10.1% lower revenue per available room (REVPAR), but its movie business reported 18.9% revenue growth.

Dividends

The Marcus Corporation (NYSE:MCS) offers a substantial, and still sustainable, dividend. Inverting a P/E ratio gives a company’s earnings yield. A company that has a 15 P/E has an earnings yield of 6.67%. Dividing a company’s dividend yield by its earnings yield gives the company’s payout ratio, which is the percentage of income that the company distributes to its shareholders each year. Marcus’ 2.7% forward dividend yield and forward P/E of 15 produce a forward payout ratio of 40%.

Marriott International Inc (NYSE:MAR)’s dividend also looks sustainable, but it’s smaller. Marriott has a 1.7% forward dividend yield and a forward P/E of 16, which results in a forward payout ratio of 27%. Regal Entertainment Group (NYSE:RGC) boasts a bigger dividend than the hotels, but this movie theater chain’s payout ratio looks very high. Regal has a 5% forward dividend yield and a forward P/E of 16, which produces an 80% forward payout ratio.