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Forget short-term pain! I’d buy this 7%-plus dividend yield for long-term gain

It looks for all the world like the ripping dividend growth among UK stocks is set to end in 2020. There’s still an abundance of brilliant stocks in great shape to keep delivering white-hot earnings and dividend growth, but share investors clearly need to tread a bit more carefully.

It’s unlikely Cineworld Group (LSE: CINE) will be reporting strong profits growth in 2020, however. Following on from a weak-ish 2019, the Hollywood film slate isn’t packed with the sort of fare that draws punters through the doors in massive numbers.

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But this isn’t the only thing that could whack Cineworld’s revenues in the near term. A report from the Advertising Association and ad intelligence specialist WARC suggests budgets for on-screen cinema adverts are expected to fall this year too.

Total ad spending in UK cinemas will have boomed almost 25% in 2019, the latest Expenditure Report suggests. However, it predicts budgets will slip 6.3% this year.

Look to 2021

Now this isn’t a catastrophe for Cineworld. The company generates the lion’s share of revenues from ticket sales, dishing out popcorn and the like. By comparision, on-screen marketing accounts for just a 10th of annual sales. Still, in addition to a relatively-soft movie schedule, this adds extra pressure to the top line.

That’s not to say, as a Cineworld shareholder, I’m quaking in my boots. Indeed, I expect sales to come roaring back in 2021 as a jam-packed schedule of cinematic crowdpullers from Disney, Marvel, DC and the like help turbocharge box office takings.

And, over the longer term, I’m confident mammoth acquisition activity that’s taken Cineworld into the North American market should create plenty for investors to get excited about. Moves like the takeover of Regal Entertainment two years ago has made it the leading cinema operator on that continent and the second-largest in the world.

7%-plus dividend

However, investor appetite for the cinema chain has fallen off a cliff of late. Consequently, it’s shed 31% of its value over the past year alone due to concerns over its large debt pile. Cineworld’s $2.1bn takeover of Canada’s Cineplex in December didn’t exactly soothe these fears.

I’m not going to downplay the threat its debt-laden balance sheet creates. But I’m confident that the board has the nous to overcome this problem. Its ability to pay down debts ahead of schedule in recent times is certainly a good omen. Besides, I’d argue that the threat posed by its high levels of leverage is more than baked into the share price right now.

At current prices, Cineworld trades on a forward P/E ratio of 8.2 times. In fact, I consider this reading far too low given the company’s strong outlook beyond 2020. Combine this with a mammoth 7.1% dividend yield — one which lays waste to the UK mid-cap average of 3% — I reckon this FTSE 250 firm is also too good to miss today.

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Royston Wild owns shares of Cineworld Group. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.