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GameStop Initiates Dividend Payout

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Recently, GameStop Corporation (GME - Free Report) , the video game and entertainment software retailer, announced its first-ever quarterly dividend of 15 cents a share, reflecting the company’s debt-free balance sheet along with healthy cash flows.

The announced dividend will be paid on March 12, 2012 to shareholders of record as of February 21, 2012. Moreover, GameStop added that the future dividends will be subject to the approval of board.

GameStop became debt-free after redeeming its remaining $125 million of outstanding senior notes in December 2011 following its $500 million share and debt repurchase program announced in November 2011. 

Dividend payout not only boosts shareholders’ return but also enhances the market value of the stock. The strategy helps to bolster investors’ confidence on the stock, thereby persuading them to either buy or hold the scrip instead of selling them.

In January 2012, GameStop announced that its holiday sales inched up to $3,019.1 million from $3,018.1 million reported in the prior-year period. New video game software sales attempted to propel the company’s sales, but dismal sales across game consoles and hardware were the deterrents.

The new video game software sales registered a growth of 9.9% to $1469.2 million, reflecting robust sales of titles, such as Activision’s Call of Duty: Modern Warfare 3, Bethesda’s Elder Scrolls V: Skyrim and Ubisoft’s Assassin’s Creed: Revelations.

On the other hand, new video game hardware sales suffered a decline of 19.6% to $538.9 million due to reduction in the launch of new console products and lack of value deals to lure customers. This benefited Wal-Mart Stores Inc. (WMT - Free Report) , who offered best deals in the hardware category.

The sales of used video game products, which accounted for approximately 21% of total sales, grew 3.5% to $627.9 million during the holiday period.

Moreover, GameStop stood by its earlier guidance and expects earnings between $1.66 to $1.76 for the fourth quarter and in the range of $2.82 to $2.92 per share for fiscal 2011. The current Zacks Consensus Estimates for the quarter is $1.72 and $2.86 for full year.

Considering the company’s fundamentals, we maintain a long-term ‘Neutral’ recommendationon the stock. Moreover, GameStop currently retains a Zacks #2 Rank, which translates into a short-term Buy rating and bodes well with the company's effort of cheering shareholders. 

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