Hilary Kramer's Daily Picks & Pans

Tuesday, January 9, 2007 If you've been to the movies recently, there's a good chance you were at a theater owned by Regal Entertainment Group (NYSE: RGC), the largest theater company in the industry. Owning more than 6,000 screens in 40 states and Washington, DC, Regal makes its money not just off ticket sales and concessions, but also off of renting its theaters out to businesses, as well as advertising. That's right -- those annoying ads you're forced to watch while waiting for the movie to start are real money makers.

I like movies as much as the next gal, but the main reason I like RGC is its substantial dividend, which at $1.20 gives a yield of almost 6%. I also like the size of the company, which gives it leverage to negotiate prices and thereby maximize its profits on concessions, and I like the fact that it's found ways to make money outside of the ticket sales and concessions.

There is some risk with a company like RGC. The year 2005 was tough for ticket sales, for example, and if there are no good movies out a company like RGC may see the effect in its revenues. There are also longer term concerns about competition from companies like Netflix, Inc. (NASDAQ:NFLX) and Blockbuster Online, and of course there's the likelihood of being able to get movies on demand via the Internet. All of this may dampen results over the coming years. But then again, 2006 has seen a boost in ticket sales (along with the inevitable rise in ticket prices), and there's no doubt that Americans still like to go to the movies.

Given all of this, it's not surprising to see that the price for RGC has been pretty volatile over the past couple years. The swings aren't drastic, but they do occur, and if you decide to go after RGC and its dividend, you may want to wait for a sudden dip, and you'll need to be prepared not to panic if the price drops by a couple bucks. On the whole, I don't think there's much upside here in terms of the price, but you may gain a few bucks in stock price to compound your 6% dividend, to make for a nice profit.

Type of stock: The largest owner of movie theaters in America.

Price target: Now at $21, RGC is close to the high end of its 52-week (and even 3-year) range. I don't think there's much risk of losing a great deal of value if you buy now, but I'd suggest waiting until its next inevitable dip below $20, or even $19. My target price is $25 by mid-2007.

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