Dividend Increase: Activision (ATVI)

Activision Blizzard (ATVI) the company best known for publishing video games like Call of Duty and World of Worldcraft (and don’t forget the glory days of Guitar Hero) announced last week a 15.38% increase to its dividend.  This brings the annual dividend to $0.30 from last years $0.26.  This also continues the streak of consecutive dividend increases to 7 years.  ATVI has been paying a dividend for 8 years.  While the current dividend yield of 0.64% isn’t very exciting, the 18.88% one day price increase definitely made the company show up on a few analyst radars.  One analyst rated the stock a buy after the earnings report and spike in the stock price.  What a fucking genius.  Where was he a year ago, when the stock was crushed and represented a real opportunity.  I swear these analyst ratings are only good for wiping your ass with.

Anyways, the $0.04 increase beat my expectation for a $0.03  0r 11.54% increase for the year.  This marks 11 of my holdings announcing increases so far on the year.  It feels good knowing your cash flows are increasing without lifting a finger.

A Look at the Dividend History:

Although the above all inclusive history is short and sweet, the average increase on ATVI dividend sits at 10.48%.  This translates to the dividend exactly doubling since 2008.  That average dividend growth rate is slightly double my goal for my entire portfolio and far outpaces inflation.  Is there room for this dividend growth rate to continue much longer?  How has the stock performed?

ATVI vs S&P500

The above chart goes back 10 years.  Clearly you can see ATVI has far outperformed the S&P500.  As consumers have transitioned to more digital purchases for their home consoles, this has proven to be a boon for video games publishers compared to the old days of just using brick and mortar.  Also, gaming has gone mainstream and lost much of the negative stereotype from back in the day.  It also doesn’t hurt that ATVI owns Candy Crush and has a foot in mobile game sales as well.

ATVI Key Stats:

Market Cap: $35 Billion

PE Ratio: 106.998

Beta: 0.82

Profit Margin: 14.67%

Total Cash: $4.03 Billion

Totat Debt: $6.36 Billion

Dividend Yield: 0.64%

Payout Ratio: 22.61%

With that low payout ratio, I expect more of the same with regards to the dividend.  For 2018, 2019, 2020, and 2021 I expect a 10% growth rate to the dividend.  While the payout ratio has slightly increased from last year, there is still plenty of room for it to grow.  Unlike the analyst jumping on the band wagon, I have concerns over the stock price.  It’s a little rich for me to say jump in at this point, look at that P/E. There could be a little more upside to the tune of $2, but I think there is more downside potential  vs upside, so I don’t think it’s worth the risk at this point.  I’m even considering some covered calls at this point and exploring those options (pun intended).

Conclusion:

I’ve had a nice run with ATVI.  Buddies introduced me to COD 4 back in the day and I didn’t second guess my stock purchase one bit back then.  The stock has been a nice play for both capital appreciation and growing income.  At this point, I think I will look at pricing on covered calls and let the market decide if I sell.  For those looking to get into the stock, I think there will be a better entry point for those with patience, back in the high 30’s.

But if you have no fear.  You can always pull a Leeroy Jenkins:

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