Red Rock Resorts, Inc. (NASDAQ:RRR) is deploying a significant shareholder rewards program, announcing Wednesday it’s paying a $3 per share special dividend.
The parent company of Station Casinos also said it’s buying up $350 million worth of its own shares in a Dutch auction. In aggregate, this amounts to one of the gaming industry’s largest returns of capital to investors since the start of the coronavirus pandemic, which triggered a spate of dividend cuts and suspensions by casino operators.
The special dividend is payable to shareholders of record on November 23, 2021, and is expected to be paid on December 22, 2021,” said the company in a statement.
Special dividends are one-off payments to investors and offer companies flexibility, because those payouts aren’t delivered quarterly, as is the case with traditional distributions by domestic companies. There is some precedent for special payouts in the gaming industry. For example, Wynn Resorts (NASDAQ:WYNN) delivered such distributions earlier this century when Steve Wynn was still at the helm of the operator.
Red Rock Balance Sheet is Strong
Red Rock quietly repurchased $26 million worth of its own stock during the second quarter and its leverage declined to 1.8x. That confirmed it has the resources to deliver the aforementioned payout without burdening its balance sheet.
When it reported third-quarter results earlier this month, the operator said its board “authorized an increase in the company’s share repurchase program from $150 million to $300 million, which gives the company over $173 million of repurchase capacity.”
Earlier this year, the operator announced the $650 million sale of Palms Casino Resort in Las Vegas to the San Manuel Band of Mission Indians — a move that generates significant proceeds to reduce debt. At the time that transaction was revealed, analysts speculated Red Rock would use that capital to pare liabilities and perhaps restart its dividend.
Red Rock finished the September quarter with $89.9 million in cash and cash equivalents and $2.68 billion in debt.
Inside Red Rock Dutch Auction
Red Rock’s Dutch auction isn’t a traditional share repurchase program. Under the terms of the tender offer, the gaming company will buy no more than $350 million of its shares from investors at prices not exceeding $53 and not below $46.
The stock closed around $49 on Tuesday, but news of the special dividend and the Dutch auction has it trading higher by more than six percent today at just over $52. Investors are displaying enthusiasm for the announcements, as the volume in Red Rock stock is already at the daily average less than three hours into the trading day. There’s a chance the company could purchase slightly more equity than is being forecast.
“In the event that Shares are properly tendered at or below the purchase price (and not properly withdrawn) having an aggregate purchase price of more than $350,000,000, RRR may exercise its right to purchase up to an additional two percent of its outstanding Shares without extending the expiration date,” according to the statement.
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