Electronic Arts (EA -0.70%) published second-quarter results after the market closed on Thursday, and it paired the release with news that it will begin paying a quarterly dividend. The company will start its distribution at $0.17 per share, working out to a yield of roughly 0.6% based on the stock's current price.
While news of fresh dividend payments might normally be welcomed by investors, the announcement arrived in conjunction with second-quarter results and guidance for the third quarter and full year that fell short of the market's expectations. EA stock saw significant sell-offs in Thursday's after-hours trading and opened up Friday's trading session down about 7%.
What's next for Electronic Arts?
EA's initiation of a dividend may signal that the company is settling into a phase of slower growth -- and that it believes returning cash in the form of dividends is necessary to keep shareholders happy. Management also announced that the company intends to buy back $2.6 billion in stock over the next couple of years. This will create a catalyst for earnings per share as outstanding shares are retired, and it likely indicates that the team thinks shares are undervalued.
In conjunction with weaker-than-anticipated sales in the second quarter and somewhat uninspiring near-term guidance, some investors are likely to be unhappy with the company's new focus on returning cash to shareholders. EA has historically fallen into the growth stock category, and the video game industry is poised for strong expansion over the long term, so there will likely be some continued scrutiny about whether paying dividends and buying back shares represent the best possible uses for the company's capital.