3 Best Dividend-Paying Gaming Stocks to Buy Now
By: Jonathan Wolfgram, May 14, 2021
The three best dividend-paying gaming stocks to buy now include a PC game creator, an online poker manager and a real estate investment trust that owns casinos.
Although stay-at-home orders are still present in many cities in the United States, the majority of the country has begun lifting economic restrictions. The lasting effects of quarantine measures have been, for the gaming industry, both adverse and strangely positive.
While casinos were struggling to pay rent 12 months ago, a new audience turned to games playable from the safety of their homes. Whether the medium was video games or online poker, the digital gaming world thrived.
3 Best Dividend-Paying Gaming Stocks to Buy Now, According to DividendInvestor.com
These stocks were found and analyzed through our very own Dividend Screener on the Dividend Investor website. The Dividend Screener is a simple web-based tool that allows investors to sift through thousands of potential equities by adding their own customized criteria to find stocks that fit their portfolio's unique needs.
Also used in the analysis of the three best dividend-paying gaming stocks to buy now was the platform designed by our partners at Stock Rover, offering a rigorous screening program to assess performance metrics for investors. To sign up for a free two-week trial, click here.
For the greatest ease of use and most comprehensive research, we recommend that savvy investors use both the Dividend Screener and Stock Rover in tandem.
Here are the three best dividend-paying gaming stocks to buy now.
3 Best Dividend-Paying Gaming Stocks to Buy Now: #3
Activision Blizzard (NASDAQ:ATVI)
Activision Blizzard (NASDAQ:ATVI) is one of the largest producers of personal computer (PC) video games in the world. It was born as a merger between the console company Activision and video game publisher Blizzard in 2008 — with the combined company responsible for some of the most popular video games, such as World of Warcraft and Call of Duty, in the last 13 years.
The mini-crash affecting the market in March 2020 left Activision Blizzard virtually unscathed. Since nearly all of the company's operations are based on people's home computers and consoles anyway, business continued as usual, even increasing due to the new group of people stranded at home looking for new hobbies. In the trailing 12-month period, the ATVI stock price grew 30.3%. This change, as well as a 50-day moving average line, are charted below.
Chart provided by Stock Rover.
Activision Blizzard's dividend is minimal, paying a consistent but meager distribution of $0.47 once per year. This dividend distribution has increased every year for the last 10 years. But with a yield of only 0.5%, it is not the most exciting choice for income investors.
In addition, investors should look at ATVI as a high-growth stock with a dividend as a secondary bonus. The company ranks in the 95th percentile in the media industry group for operating income — with annual sales of $8.5 billion and average sales growth of 5.7% annually. ATVI outperforms nearly all of its peers in sheer volume of sales and market dominance. Activision Blizzard has a stable cash flow and, with a payout ratio of only 13.4%, it is reinvesting the majority of its income back into the business.
A discounted cash flow (DCF) analysis using Stock Rover values the stock at $106.33, approximately 12% higher than its latest closing price of $94.80.
Churchill Downs (NASDAQ:CHDN)
Churchill Downs (NASDAQ:CHDN) is a gambling company divided into three primary business segments: horse-racing, online wagering and gaming. Where managing live horse races and making commission on wagers gave the company its namesake and its name recognition today, the majority of Churchill Downs's income is collected from its gaming operations.
The company has grown tremendously in the last year, with its stock price surging 96.2% in the trailing 12-month period. While a non-trivial amount of the growth is due to post-COVID recovery efforts after a stock-price pullback in March 2020, CHDN is still more than 40% higher than its pre-crash trading price. Its high growth is also consistent in the long-term, having grown 119.9% in the trailing three-year period and 381.2% in the trailing five-year period.
CHDN's stock price in the last year is plotted below, alongside a 50-day moving average to show the consistent upward trend.
Chart created using Stock Rover. To activate your free trial, click here.
Churchill Downs pays an annual dividend of $0.62, yielding just 0.3%. The dividend growth rate in the last 10 years, however, has averaged 14.1% per year. In addition to its high growth, the company has grown its dividend each year for a decade, maintaining a 10-year streak for consecutive dividend increases.
Although the company famed for its Kentucky Derby has struggled to get fans to live events since the beginning of the pandemic, it has thrived due to aggressive digital expansion and reprioritization to gaming and digital gambling. Yet, with the economy gradually reopening, the stock has potential for both massive upside and downside. As live events become a reality and more gamblers bet at the Triple Crown races, the company may see a sudden surge in cash flow. However, gambling companies tend to struggle during economic recessions, so those anticipating a market crash in the near future may want to exercise caution.
The average analysts' target price is $233.80, 16.18% higher than the company's most recent closing price of $201.24. A fair value was not calculated due to insufficient data of the company's cash flows.
Gaming and Leisure Properties Inc. (NASDAQ:GLPI)
Gaming and Leisure Properties Inc. (NASDAQ:GLPI) is a real estate investment trust (REIT) owning and leasing a variety of gaming-related properties. Most of the company's revenue is derived from casinos in the American Midwest but GLPI owns large casinos everywhere from Hollywood to New Orleans. It offers strictly long-term lease agreements that secure a stable cash flow and tie the company directly to its biggest client: Penn National Gaming (NASDAQ:PENN).
GLPI suffered a massive price-pullback of more than 70% when the economy closed in March 2020. Since then, it has fully recovered and rocketed 83.7% in the trailing 12-month period, maintaining a stable upward trend beginning with a profitable spike in May 2020. Its one-year returns are charted below with a 50-day moving average line.
In dividend distributions, when compared to the other dividend-paying gaming stocks on this list, GLPI looks like a runaway buy. The company pays a quarterly dividend of $0.65, giving investors an annualized $2.60 while trading at a lower price than its previously listed peers. It yields 5.5% and, as a REIT, is required by law to pay out more than 90% of its taxable income to investors.
Even though the company's payout ratio is 101.7%, don't let a payout ratio topping 100% concern you. With regular stocks and equities, it would be an immediate red flag — meaning the company is going into debt to pay dividends to its shareholders. A good payout ratio is generally considered to be between 35 and 55%, but REITs play by different rules. Due to the speed at which GLPI and other REITs can depreciate their properties, the companies are able to mark off depreciation expenses as a loss even though the properties are perfectly profitable.
Instead of a traditional payout ratio, we use a modified funds from operations (FFO) payout ratio. Funds from operations is reflective of how much income the company is pulling in from its properties in rent payments before accountants can mark off depreciation expenses. The FFO payout ratio of GLPI is 79%, much closer to the 90% ratio we expect from REITs. For more information on how to calculate payout ratios for REITs, read our article Why Do REITs Have High Payout Ratios?
A discounted cash flow (DCF) analysis using Stock Rover values the company at $57.17 per share, roughly 21% higher than its latest closing price of $47.11. We are not the most confident in this valuation, however, as another method of calculation using cash flows forecasted into perpetuity instead of an exit multiple gives a significantly different value.
The three best dividend-paying gaming stocks to buy now featured in this article gives investors a chance to "win, place and show."
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Jonathan Wolfgram is an editorial staffer who writes website content at Eagle Financial Publications. He graduated from the University of Minnesota with Bachelor's degrees in Finance and Philosophy. Jonathan writes for www.DividendInvestor.com and www.StockInvestor.com.
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