Investing in Gaming Companies Is Good Bet

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

As the gambling 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.

On Wednesday, Boyd Gaming Corp. joined five other major gambling 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 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 gambling companies.

Snyder said the Boyd dividend should also be considered modest and 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.

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, dividends are a great way to return value to shareholders,"he said."We'll probably see less share repurchase programs."

The new dividend programs also can be expected to attract a new class of large institutional investors into gambling 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 see both Park Place and MGM Mirage caving in eventually as capital projects are completed 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.