GAMBLING COMPANIES: Investors cheer new IGT dividend

Reno-based International Game Technology, the world's largest slot machine manufacturer, announced Wednesday a 4-for-1 stock split and a quarterly cash dividend of 7 1/2 cents per share.

Wall Street welcomed the dividend policy, saying it will open the company to a new class of investors, and predicted other gaming operators will follow suit.

"The inception of a dividend policy makes strategic sense for IGT, given its investment-grade balance sheet and strong free cash flow," Deutsche Bank analyst Marc Falcone said.

"While IGT's dividend yield will be modest, 30 cents a year, this could attract many new investors in addition to institutions that can only invest in dividend-paying stocks," he said.

Falcone predicted other gaming companies will follow in the next 12 to 18 months because of the lack of new gaming initiatives and as a way to return capital to shareholders.

Analysts speculated for months that the proposed Bush tax reduction on dividends would encourage gaming companies to initiate dividend policies. IGT Vice President of Marketing Ed Rogich said the recently passed tax bill was an important consideration for the company's board of directors in deciding to pay dividends, as was its interest in attracting a broader base of institutional investors.

Analysts also said such dividend policies could be significant for other gaming companies and their shareholders.

"If you look at free cash flow for the bigger gaming operators -- Harrah's Entertainment, MGM Mirage, Mandalay Resort Group and Park Place Entertainment Corporation -- there is potential for these operators to have significant dividend policies with yields anywhere from 2 percent to 7 percent," said Joe Greff, gaming analyst at Fulcrum Global Partners, an independent Wall Street investment research firm.

Standard & Poor's 500 firms pay dividends of 1.3 percent on the average, so the potential gaming industry yields exceed the broader market, he added.

In addition to new investors, gaming operators are also looking at dividend policies because they would attract a more stable, longer-term investor base that should enhance value and limit volatility in share price performance, Greff said.

Following the IGT split, Deutsche Bank estimates the company will have approximately 343.2 million shares outstanding.

IGT is expected to generate $480 million this year in cash flow, generally defined as earnings before interest taxes, depreciation and amortization, out of which Deutsche Bank estimates it will cost roughly $103 million a year to fund the new dividend policy.

Falcone said the dividend policy and stock split are positive catalysts that should drive share prices higher.

IGT closed Wednesday at a record $90.60 for the year, a 52-week high, up $5.25 for the day, or 6.15 percent, on volume of 3 million shares, more than double the average daily trading volume of 1.15 million shares.