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Income Investors Have a New Stock to P-L-A-Y With Now

By Rick Munarriz – Sep 17, 2018 at 11:25AM

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The high-volume restaurant chain kicks off a quarterly dividend policy to go along with its aggressive share buybacks.

Dave & Buster's Entertainment (PLAY 0.43%) is finally yielding to temptation. The rapidly expanding chain of 117 units combining casual dining, sports bars, and high-tech video arcade gaming initiated a dividend policy on Friday. Dave & Buster's will treat investors to a quarterly payout of $0.15 a share.

The move translates to a yield just south of 1% with the stock crossing $60 to hit new 52-week highs after posting well-received financial results late last week. The new distributions aren't going to sway hardcore investors feasting on the fat yields of REITs, utilities, and preferred stock. However, with the stock now up a scintillating 64% since its springtime bottom, the new quarterly dividend is icing on the capital appreciation cake.

Patrons playing at Dave & Buster's holding prize tickets.

Image source: Dave & Buster's.

You can't spell P-L-A-Y without P-A-Y

Dave & Buster's trading at its highest level since early August of last year may come as a surprise. The eatertainment leader has now rattled off four consecutive quarters of negative comps. Brisk expansion and an extra summer week this fiscal period are the reasons for top-line growth in last week's quarterly report, though the 14% in revenue growth was more than analysts were targeting

The news was better on the bottom line, as earnings per share rose 18% to $0.84. Wall Street was bracing for a decline. Dave & Buster's is encouraged by its virtual reality initiatives -- taking its gaming component higher than smaller arcade rivals can bankroll -- but it's still problematic to see negative growth at both the dining and gaming segments at the unit level.

The shiny new dividend will give patient investors a quarterly gift, but it's not the only way that Dave & Buster's has been returning money to its stakeholders. The chain has been a voracious eater of its own stock. Dave & Buster's has invested $253.1 million to repurchase 4.8 million shares of its own stock so far this fiscal year, and last week the board has authorized another $100 million in buybacks. Repurchases are often criticized when a sinking stock finds companies snapping up shares at rich price points, but it's a different story when an investment is on the rise. Dave & Buster's average purchase price of $52.73 per share this year is an 18% discount to where the stock is currently trading.

Negative comps will remain a concern until the trend is reversed, but now we're at the point where comparisons will get easier as its performance is pitted against the first of the declines. It's not cannibalization, as Dave & Buster's has been focusing much of its expansion efforts on entering new markets. It will need to invest in winning back customers, and now investors can cash in with the new dividend as they wait things out.

Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool recommends Dave & Buster's Entertainment. The Motley Fool has a disclosure policy.

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