James Packer-run Crown Resorts Ltd (ASX CWN) is set for a big dividend windfall after a somewhat disappointing quarter from its Asian investment vehicle Melco Crown Entertainment Ltd (ADR) (NASDAQ: MPEL).
Solid Investment
Crown's 34% stake in Melco, now worth over $4 billion, was acquired in 2006 by investing $600 million in the joint venture with local businessman Lawrence Ho.
Melco Crown Entertainment is based in Macau and currently operates Altira Macau, a casino hotel located at Taipa, Macau, and City of Dreams, an integrated urban casino resort located in Cotai, Macau. Melco Crown Entertainment's business also includes the Mocha Clubs, which comprise the largest non-casino based operations of electronic gaming machines in Macau.
The Company is also developing the Studio City Project, an integrated entertainment, retail and gaming resort in Cotai, Macau, and City of Dreams Manila, a casino, hotel, retail and entertainment resort in the Entertainment City complex in Manila.
Disappointing Results
Melco shares actually rose overnight even though the company missed Wall Street's expectations. Revenue fell 10% and net income fell 27%, however this was less than the 23.2% revenue fall reported from all Macau-based casinos.
The reported earnings per share of 24 cents were below the 31 cents expected by the market, however it appears that investors were pleased with the company's ability to grow mass-market revenue by 10%.
The good news for Crown investors however, is that Melco announced that it would pay out 30% of earnings via dividends, in line with its dividend policy announced in early 2014.
$13 million Dividend
Based on the net income of $132 million for the quarter, Crown is set to receive around $13 million in dividends. This represents only 2% of last financial year's net profit, but will help to fund expansion and upgrade projects in Australia, Asia and the US.
Crown is currently investing in a new hotel complex in Perth, updating its flagship Melbourne Casino, building a new luxury complex in Sydney, opening a casino in Sri Lanka, developing plans for a US casino, and investigating opportunities in Japan. These projects will require significant cashflow and the quarterly dividend from Melco will help to fund it.
