Income is a big part of investors' returns. Stocks, mutual funds and fixed income ideas in this column are featured because they are relatively solid in their ability to pay dividends or interest. We're giving income investors a resource to start their research for investments that give better yields with lower risk.

August 18, 2010 - Regal Entertainment Group (RGC-NYSE) is the largest theater operator in the U.S.. As of December 31, 2009, it operated 6,768 screens in 548 theatres in 39 states and the District of Columbia. It develops, acquires, and operates multi-screen theaters primarily in mid-sized metropolitan markets and suburban growth areas of larger metropolitan markets under Regal Cinemas, United Artists, and Edwards brand names. The company was founded in 2002 and is based in Knoxville, Tennessee.

Earnings didn't follow the same upward path. They faltered in 2008, dipping to 47 cents a share after reaching 86 cents in 2007. Last year, they rebounded to 62 cents. This year, 17 analysts have a consensus of 50 cents (the range among them is 34 cents to 75 cents). Next year, they expect much better results, thinking 80 cents will be the final tally (range is 52 cents to 96 cents). Quarterly earnings will be out in October. Expect 11 cents a share vs a negative 1 cent last year in the third period. For the final quarter, anlaysts see 22 cents compared to 23 cents last year in the fourth.

There are several factors that go into a successful year for a theater operator: the quality of the movies Hollywood produces, the state of the economy, the location of the theater, accessibility, etc. One movie like Avatar can make a huge difference for an operator. So can a flop. Theater operators don't control their own destinies. They depend on Hollywood for success.

The first half of this year attendance was down which hurt profitability. But the second half looks very promising with new episodes from 2 previous blockbusters: Harry Potter and the Deathly Hallows as well as The Chronicles of Narnia: the Voyage of the Dawn Trader. Also contributing to better results later this year: higher ticket prices as filmgoers pay more for tickets to major movies and 3D flicks. To help even more, RGC bought 8 theaters from AMC Entertainment in exchange for 2 of theirs and some cash. That deal will give Regal more presence in the midwest market.

The dividend for RGC is 72 cents a year, giving investors a 5.6% yield. Even with earnings most likely below that for 2010, management is committed to paying shareholders. Next year, it looks like the payout will be covered adequately by earnings. The dividend was $1.20 in 2006, 2007, and 2008. It was cut last year to 72 cents.

There are some caveats with this stock. Its valuation is relatively high, carrying a P/E ratio of 20 while most other stocks in the industry are about 13. Those earnings projections are highly suspect since RGC has no input into the product it offers. A string of bad movies can change forecasts fast. What worked before may not work again. A sequel to a great movie doesn't automatically translate into another blockbuster. Finally, movie fans can be fickle. They may love one type of movie for a while, then move to the next genre in a few weeks or months.

More numbers: Market cap is $2.03 billion. Trailing P/E is 37 but Forward P/E is 16.5. Price to sales ratio is .69. Book value is negative $1.64. Operating margin for the last 12 months was 9.69% while Profit margin was 1.90%. Return on assets was 6.70%. There's total cash of $225.10 million or $1.47 a share. Total debt is $2.00 billion. Current ratio is .62. Beta is .91. There are 153.30 million shares outstanding but only 21.53 million in the Float. Insiders own 39.10% of the stock. Institutions own 54.40%.

Income investors should have some comfort with risk to pursue this stock. While the dividend is attractive, it is currently taking more than the company makes. And there's a large amount of debt which could come back to bite the company when interest rates rise again (and they surely will). Still, if the line-up of new movies, especially the blockbusters, prove as appealing as their predecessors, look for analysts to raise their numbers and maybe for this dividend payer to raise the payout.

- Company Web site: www.regmovies.com

- Ted Allrich