SanchoPanza
SanchoPanza
  • Threads: 34
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Joined: May 10, 2010
January 31st, 2012 at 3:27:47 PM permalink
"Dover Downs, however, is different. The stock trades at a current P/E of 20, but has declining growth ahead. Here is why growth will decline:
Competition
Delaware Tax Code
Payout Ratio
Competition
The State of Maryland supplies Dover Downs with nearly 50% of its customers. Recent gaming laws in the state have allowed slot machines to be built. Penn National Gaming (PENN) recently built the Hollywood Casino in Perryville, MD. This opening of the casino by PNG means that residents in Delware may actually opt to go to the casino in Maryland than their own state due to proximity.

The Hollywood Casino in Maryland is not the only one in the state. This summer, another casino is set to open in Maryland. The Maryland Live is a $500 million casino built in Anne Arundel Mills. Maryland is seeing a large growth in gaming and that will be a problem for Dover Downs. It's also important to note that Pennsylvania has also eased its gaming laws in the past few years.

Tax Code
CEO Dennis McGlynn has stated that under the current tax code Dover Downs could see a massive decline in profitability. For example, last year the company had to take on debt to pay licensing fees. The industry is heavily regulated by the government and that causes problems for casinos.

Payout Ratio
Dover Downs is a very shareholder-friendly company. The stock pays a 5% dividend. However, the issue has now become the lack of cash flow it has to sustain that dividend. The current payout ratio stands at 100%. Dover Downs will need to cut the dividend in order to build up its balance sheet. With such a high payout ratio, the company would have little to no cash left over for investment in the business."--Seeking Alpha

The artricle also analyzes the prospects for Penn National, Churchill Downs and Boyd Gaming.
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