Thursday, July 31, 2003
Copyright © Las Vegas Review-Journal

Gaming companies listen to investors' demands

Driven by investor demands, many major gaming companies have launched dividend policies in recent months, with most paying yields higher than the S&P 500 average.

As the gaming industry has matured, investors have expressed increasing interest in dividend programs to return shareholder value as opposed to new development projects that could generate questionable levels of returns, Fulcrum Global Partners gaming analyst Joe Greff said.

On Wednesday, Boyd Gaming Corp. joined five other major gaming companies by announcing a 30 cent, or 1.7 percent, annual dividend policy.

"The fact the tax law change was implemented teed up the consideration of doing it," Boyd President Don Snyder said. "In the past, cash dividends were always the least tax-effective way of returning value to shareholders."

Congress in June passed President Bush's $350 billion tax cut plan, reducing taxes on capital gains and dividends to levels not seen since the Great Depression.

Other factors proved critical to Boyd, however, in making the final decision to offer dividends, Snyder said.

"Gaming is not as much of a growth industry as it has been in the past," he said.

Also, Boyd as a company has grown and diversified, giving it the flexibility to finance growth and return shareholder value at the same time, Snyder said.

As a sign of its maturity, Boyd's dividend yield beats the 1.45 percent average dividend yield offered by Standard & Poor's 500 companies, as do the dividends offered by most other gaming companies.

However, Snyder said the Boyd dividend should also be considered modest and that the S&P average is a moving target as other companies and industries raise the dividends they now offer or turn to new dividend policies.

Gaming company stocks have also been returning value to shareholders by appreciating in value and can be expected to continue appreciating, analysts said. The Dow Jones casino index closed Wednesday at 293.36, up 31 percent over a year earlier.

By comparison, the yield on gaming industry bonds currently is 8.67 percent, although they are preferred by some investor classes because they are considered less risky than stocks, Deutsche Bank analyst Andrew Zarnett said.

Boyd joined Harrah's Entertainment, Mandalay Resort Group, GTECH Holding Corp., Station Casinos and International Game Technology, all of which have announced dividend policies in the past two months.

Deutsche Bank analyst Marc Falcone said the change in tax policy has been the major catalyst for all the companies initiating dividend programs.

"For gaming companies (with excess cash flow), dividends are a great way to return value to shareholders. We'll probably see less share repurchase programs," he said.

The new dividend programs also can be expected to attract a new class of large institutional investors into gaming stocks, Falcone said.

MGM Mirage and Park Place Entertainment Corp. are now the only holdouts, with each setting clear but independent priorities.

"We believe that right now the best way to create value for our shareholders is to invest in our properties and pay down debt," said Park Place spokesman Rob Stewart.

MGM Mirage Chief Executive Officer Terry Lanni said that given current business and capital and investment plans, his board has deferred starting any regular dividend program indefinitely.

"We generally believe that share repurchases are a more attractive way to return capital to shareholders. We also believe there are better uses of our capital," he said.

Analysts, however, see both Park Place and MGM Mirage caving in the future as capital projects are built out and debt is paid down.

"MGM will more likely do a dividend before Park Place. Park Place needs to reinvest in its asset base and pay down debt," Falcone said.

DIVIDEND YIELDS
	Price	Annual Dividend	Dividend Yield
Harrah's Entertainment	$43.25	$1.20	2.8 percent
Mandalay Resort Group	$33.54	$0.92	2.7
Boyd Gaming Corp.	$17.60	$0.30	1.7
GTECH Holdings Corp.	$39.43	$0.68	1.7
Station Casinos	$29.00	$0.50	1.7
S&P 500	NA	NA	1.5
International Game	$25.55	$0.30	1.2