Following a $3 billion dollar holiday quarter that helped it become debt-free, video game retailer GameStop is rewarding its investors with its first ever cash dividend.
Dividends are one way for a publicly-traded company to spend its profits and excess capital, as opposed to spending that money to grow its business. This is typically done to reward investors and express confidence in long-term growth.
The company's executive chairman Dan Matteo said that this decision reflects GameStop's strong capital position, and is meant to demonstrate its confidence in the long-term viability of its business despite the video game industry's difficulties in 2011.
Wedbush analyst Michael Pachter says GameStop is "well-positioned for a strong 2012" thanks to high-profile software releases, the launch of new hardware like PlayStation Vita and Wii U, and growth from the retail chain's online business.
He also notes "GameStop likely gained market share over the holiday period," pointing to its 9.9 percent growth in new software sales during November and December, which was above the 4 percent drop NPD Group reported for retailers.
GameStop's first quarterly dividend payment comes out to $0.15 a share -- Pachter estimates this will total to $21 million. He forecasts that the company will end the fiscal year (April 2011-May 2012) with over $680 million in cash, which it could use to repurchase shares.
Analyst group Stern Agee agrees that GameStop will likely continue its stock buybacks, and adds, "We believe GameStop's declaration of a cash dividend is the right move and a smart allocation of its capital resources."
