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A Dividend on the Strip, Teen Wallet Angst, and Black Friday

Jason Stipp

Jason Stipp: I'm Jason Stipp from Morningstar. Welcome to the Friday Five. This is our look back at investors' five most notable headlines from the last week. Here with me, as always, with the Friday Five is Morningstar markets editor Jeremy Glaser. Thanks for joining me, Jeremy.

Jeremy Glaser: You're welcome, Jason.

Stipp: So what do you got for the Five this week?

Glaser: Well, we have some good news for dividend lovers. The Kraft/Cadbury saga continues to drag on. Senator Dodd gave us his idea for financial regulation. Teenagers seem to be pulling back from their spending a little bit, and finally, we'll have a sneak preview of Black Friday.

Stipp: I always like a good dividend story, so let's take it from the top.

Glaser: Yeah. Casino operator Wynn Resorts has declared a 20 cent per share quarterly dividend to start being paid in 2010. Now the company had paid out special dividends before, but this is the first time they're going to be regularly returning money to shareholders.

In an industry like the casinos where we don't think there's going to be a lot of opportunity to deploy new capital--we don't need a lot of new rooms on the Las Vegas strip right now--it's nice to see management being prudent and return that back to shareholders. I think this is only good news for investors.

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Stipp: Speaking of management prudence, we had another example this week with the Kraft offer for Cadbury. What's your take on that?

Glaser: Yeah, Kraft finally made their formal offer for Cadbury. Instead of raising it like a lot of people had speculated--because Cadbury had made a lot of noise that they thought they were being under-valued--they stuck with the same level that they initially came out at.

I think that shows a lot of prudence on management side for not going and making the big splashy purchase. They want Cadbury, they think it's a good fit, but they're not willing to overpay. I think that's a good sign for Kraft investors.

Stipp: So still a lot to play out in that story, but so far we like what we've seen for this.

Glaser: Yeah, I mean with the M&A wave that we saw coming I was getting little worried that valuations might be getting a little out of hand, and this is a sign that people aren't just willing to pay anything to get a deal done.

Stipp: Sure. So stepping back to a more macro picture, Chris Dodd had some legislation, we talked about this before, things seemed to be moving slowly. We did actually see bill come out from him, or a proposed bill. What's your take on that?

Glaser: Yeah. You know, I think it's probably too early to tell exactly what final version will come through. But it seems to be coalescing against a few ideas.

That there should be a single national bank regulator, so that banks can't shop to different places. There should be a board that kind of regulates products and makes sure that they're suitable for consumers, and finally, that there needs to be some way to tackle systematic risk. Or there needs to be a systematic risk regulator, if you will.

I think that it could be a net positive if we actually have regulation that works with the banks and works with people to get better products, or it could turn into a boondoggle by trying to combine all these disperate entities into one.

I think time is going to tell and the way that the legislation is written could have a huge impact on bank profitability and a huge impact on the products that people see in the future.

Stipp: Returning to some stock news, we also saw some reports from Electronic Arts, a video game maker. You have a few thoughts on what that might imply for the market out there.

Glaser: Yeah, you know, Electronic Arts did not have a good quarter. They're seeing demand for video games really fall. They cut development on a lot of the games they think aren't going to be profitable.

And I think a lot of this stems from the fact that teenagers just aren't spending like they used to. The unemployment rate for people between 16 and 19 is a staggering 27.6%. So if you think the 10.2% for the general population is high, it's more than twice that for teenagers. I think it means that there's people who just aren't out there spending on discretionary items like video games.

I think we saw a similar story play out in same-store sales for some of the teen retailers, that people aren't out there. I think that this is a story that maybe got buried when consumer spending for everybody was so bad, but as other consumers have to spend a little bit more, I think we could see teenagers continue to lag behind the rest of the market as there just aren't a lot of jobs for them.

Stipp: Sure. For EA I think what investors are waiting for and what consumers are waiting for is the Ben Bernanke Exit Strategy game. That one's going to have lots of twists and turns, and it's going to keep them captivated for awhile.

Glaser: Yeah. That's going to be a big seller.

Stipp: So on the last story of this week, you have a little bit to say about holiday shopping season. They're setting up a tree behind us here in Daley Plaza. What's your take on Black Friday and is it going to be a scary Black Friday or good Black Friday?

Glaser: Yeah, I don't know if the retailers are going to be seeing red this Black Friday. We saw Wal-Mart, Kohl's, Macy's, a lot of the retailers, report better than expected quarterly results, but really try to talk investors down from expecting a really excellent holiday season.

I think there's still going to be a lot of pressures. People are still worried about their jobs. There's going to be a lot of value merchandise out there and people are going to really be focusing on getting the cheapest gift that they can instead of maybe the most extravagant, as they had in Christmases past.

So I think there could be a challenging holiday season, I think the retailers are trying to manage expectations for that. They're going to do everything they can to try to get people in the stores and get the merchandizing mix right. We'll have to see if they're successful in doing that.

Stipp: It always seems like it's a game of chicken between the retailers and the customers and who's going to wait the longest and who's going to blink first. It's going to be interesting to watch that play out, this year especially. Thanks so much for joining me, Jeremy.

Glaser: You're welcome.

Stipp: For I'm Jason Stipp, thanks for watching.