In the casino business as elsewhere, it's primarily the mature, stable operators that pay regular dividends. One thinks of Mandalay Resort Group (NYSE: MBG), Station Casinos (NYSE: STN), Harrah's Entertainment (NYSE: HET), and Boyd Gaming (NYSE: BYD). Yesterday, Las Vegas-based riverboat casino operator Ameristar Casinos (Nasdaq: ASCA) joined the elite.
Whether that's good or bad depends on how you look at it.
There's no questioning the company's performance or its relatively clean balance sheet. Ameristar holds the leading market position everywhere it competes. To date, the plan has been to expand into new markets, aggressively invest capital, and then pay down debt so that it can raise capital and expand some more.
But if paying a dividend is the best alternative for its cash, has Ameristar hit a roadblock in its expansion plans? Maybe.
Ameristar has indeed appeared increasingly value-conscious in its thirst for growth. Rather than build a hotel on its property in St. Louis, the company made acquisitions to diversify its revenue streams beyond its flagship operations in Missouri. As it happened, archrival Harrah's outbid Ameristar for its first choice, Jack Binion's Horseshoe Gaming, in a $1.45 billion deal announced in September.
Ameristar also played it safe in avoiding the madness in Illinois over the 10th and "final" bid due to the "unstable" nature of the state legislature.
Of course, with somewhere in the area of $1 per share in extra cash on the balance sheet, Ameristar can afford to pay out. The quarterly payment of 12.5 cents per share represents less than a quarter of Ameristar's free cash flow -- hardly enough to put a dent in its growth plans. Interest savings on senior credit facilities restructured earlier this month make the payout all the more palatable.
But a dividend is rarely the only option. Ameristar could always buy back shares, a more efficient means of creating shareholder value chosen by rival Argosy Gaming (NYSE: AGY). Or, unless the company has an acquisition target in its sights, it might even just pluck down the cash for that new hotel in St. Louis.
Because the dividend has been discussed for several months and was alluded to specifically in the debt restructuring agreement, the announcement comes as no surprise. Even if it did, who's going to complain about receiving a small dividend? Still, it sends a signal.
Ameristar's expansion plans may have chilled. As a shareholder, I'll be very interested to see what the company does next.
Talk it over on the Gamblin' Fools discussion board.
Fool contributor Jeff Hwang owns shares of Ameristar Casinos.
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