Archon Corporation operates the Pioneer Hotel & Gambling Hall in Nevada. In addition, the Company owns real estate on Las Vegas Boulevard South (the “Strip”) in Las Vegas, Nevada, and investment properties in Dorchester, Massachusetts, and Gaithersburg, Maryland. An investor found the following note contained in the Archon annual report:
The Company has not declared dividends on its preferred stock since fiscal 1996. Dividends of approximately $1.5 million, $1.5 million, $1.6 million, $1.5 million, and $1.6 million for fiscal 2006, 2005, 2004, 2003, and 2002, respectively, have not been declared and are in arrears. Total accumulated preferred stock dividends in arrears for the five preceding years ended on September 30, 2006, are $12.3 million, $10.8 million, $9.5 million, $8.2 million, and $7.3 million, respectively.
The investor who read the note suggested that the Archon preferred stock would be a good investment because of the large amount of dividend income that would be earned when the company started paying dividends again: “As the owner of the stock, I’ll get dividends for the period I hold the stock plus some previous periods when I didn’t even own the stock.” Do you agree? Explain.