Activision Blizzard Inc has posted better-than-expected results fueled by its hit holiday release "Call Of Duty: Modern Warfare 2," and shares rallied 5.4% as the company said it would start paying an annual dividend.

The world's largest standalone game publisher by market value has risen above much of the turmoil in the gaming industry thanks to blockbuster titles like "Call of Duty" and its margin-friendly online game "World of Warcraft."

Activision declared an annual dividend of 15 cents a share, and also announced a $1 billion stock buyback program.

"It shows you the strength and the confidence we have," chief executive Bobby Kotick said in an interview with Reuters. Still, he said, the macroeconomic conditions hurting the video game sector have not improved.

Last year was a difficult one for the industry, as casual gamers dialed back on spending. Software sales slid 11% last year in the United States, the world's largest market.

But many analysts expect game software to grow robustly this year over the depressed levels of 2009.

The music category was particularly hard hit last year. Activision, which publishes the "Guitar Hero" franchise and its various spinoffs, will reduce the number of its music titles in 2010, but said it expects the segment to be more profitable.

The company also plans to release another "Call of Duty" title for the holiday
season, and will launch a new expansion pack for "World of Warcraft, a multiplayer online game that has 11.5 million subscribers.

Activision's shares are down 9% this year, and analysts in recent weeks have said the company's shares may be oversold.

Activision posted a net loss of $286 million, or 23 cents a share in the fiscal fourth-quarter ended Dec. 31, versus a year-ago loss of $72 million, or 5 cents a share.

Excluding items, Activision earned 49 cents a share, beating analysts' average estimate of 43 cents a share, according to Thomson Reuters I/B/E/S.

Revenue fell 5% to $1.6 billion. Non-GAAP revenue came in at $2.5 billion, better than the Wall Street estimate of $2.23 billion.