Dividend Investor Portfolio #11: King of Entertainment
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Dear Investor,
Welcome to the 11th edition of TipRanks’ Dividend Investor Portfolio & Newsletter.
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Market-Moving News: June 3, 2024
Stocks ended the turbulent week in the red, snapping a five-week winning streak. Despite a down week indexes still rounded out a strong month, with the S&P 500 (SPX) registering its best May since 2009 and the Nasdaq Composite (NDAQ) clocking its strongest May since 2003.
The S&P 500 is entering June near its all-time high, with a gain of 5.2% for the month. The Nasdaq Composite and Nasdaq-100 surged over 7% in May, while the Dow Jones Industrial Average (DJIA) added just 2.1%. June is historically a weak period in the stock markets with an average gain of just 0.1% since 1950, but election years typically see stronger outcomes.
The pressures on equities have been building throughout the shortened trading week, as investors focused on Friday’s Core PCE report, the Fed’s preferred inflation gauge. In addition, weaker-than-expected Treasury note auctions sent yields sharply upwards, shaking demand for stocks that are trading way above their long-term average valuations. However, as inflation numbers aligned with expectations, markets staged a sharp turnaround in the last hour before the markets closed.
On the other hand, the reduced Q1 2024 GDP growth estimate signaled that the Fed’s restrictive policy may be succeeding in cooling down the economy, which would result in a continued inflation downtrend.
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This Week’s Quality Dividend Stock Idea
VICI Properties (VICI) is a real estate investment trust (REIT), which was formed in 2017 when casino operator Caesars Entertainment spun off its real estate business to create an experiential property-focused REIT. Since its formation, VICI has invested around $35 billion in the U.S. and international markets across gaming and other experiential assets.
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Entertainment Giant
With a market capitalization of almost $30 billion and annual revenues of $3.6 billion, VICI owns one of the largest portfolios of gaming, hospitality, and entertainment destinations in the U.S. These include Caesars Palace, MGM Grand, and the Venetian Resort in Las Vegas.
VICI’s portfolio holds 93 assets across the U.S. and Canada, with 54 gaming properties and 39 other experiential properties, totaling around 127 million square feet consisting of 60,300 hotel rooms, and over 500 dining and entertainment venues.
The REIT’s largest tenants are the leading U.S. casino operating companies Caesars Entertainment (CZR) and MGM Resorts (MGM), who together operate 31 of VICI’s gaming properties. Currently, casino properties are responsible for the bulk of VICI’s revenues. VICI owns 33 acres of undeveloped land near the Las Vegas Strip, which it has leased out to Caesars Entertainment.
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Diversification Efforts
The company leverages its casino income to diversify its portfolio holdings, which should eventually result in a reduction of its exposure to the gaming industry while simultaneously increasing its growth runway. It owns a growing array of real estate and financing partnerships with leading non-gaming experiential operators. These properties include Chelsea Piers – a leading fitness and entertainment complex in New York City – as well as bowling alleys, golf courses, and other non-gambling venues.
As a part of its strategy of portfolio diversification, last year VICI entered into a sale-leaseback agreement with Bowlero Corp (BOWL), a global leader in bowling entertainment, acquiring the real estate assets of 38 bowling centers across 17 states.
In addition, VICI’s Partner Property Growth Fund strategy to supply funding for the development of the properties of its tenants, providing “same-store” capital, allows the company to charge higher rent while earning an interest on the loan payments. VICI also invests in or lends to property operators that are not its tenants, increasing the potential lease pipeline.
Another competitive advantage of ITW over its peers is the company’s dedication to innovation. The company holds ~19,600 granted and pending patents. Thanks to this culture of innovation, which is supported by heavy investment in R&D, as well as its agile corporate culture and solid management, within the past decade ITW has succeeded in growing its market cap by 3.4x and its operating income by 42%, while tripling its EPS and raising its DPS by 3.7x.
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Rising Revenues With High Visibility
VICI’s properties are fully occupied and are leased through triple-net lease agreements. A triple net lease agreement requires the tenant to pay all property expenses including real estate taxes, insurance, and maintenance, along with rent and utilities. Most of VICI’s property leases are long-term, ranging from 15 years to 32 years with an option for renewal, and include annual base rent escalations. Thus, the company’s revenues are highly stable and predictable.
In FY23, VICI’s total revenues surged by 38.9% year-over-year. Over the past five years, the trust’s revenues have grown at a CAGR of 32.7%. In Q1, revenues increased 8.4% year-over-year.
For REITs, Funds from Operations (FFO) and Adjusted Funds from Operations (AFFO) are key business performance indicators. FFO is a measure of operating performance; it excludes one-time cash flows such as income from the sale of an asset. A REIT’s AFFO excludes any capitalized and amortized recurring expenses from the FFO and gives a better picture of the REIT’s earnings, and as such, its dividend-paying capacity.
At the end of the first quarter, VICI had $590 million of FFO attributable to common stockholders or $0.57 per share, a growth of 9.6% year-over-year. The company’s AFFO was $583.2 million for the quarter, an increase of 10.3% year-over-year.
The company has reiterated its guidance for FY24, guiding for AFFO to be between $2.32 billion and $2.35 billion or in the range of $2.22 to $2.25 per diluted common share, an estimated increase between 3.3% and 4.6% year-over-year.
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VICI’s Robust Finances
The net debt-to-equity metric is an important financial health ratio for REITs, as real estate investments can have high debt and are subject to interest rate risk. However, VICI is well-placed in this regard with its net debt-to-equity ratio at 62.8%, as opposed to 100%+ at many REITs.
The company’s debt stood at $17.1 billion in March, virtually unchanged year-over-year despite the growth in its properties under management. Additionally, the company’s EBIT-to-Interest expense ratio of 4.17 times indicates a solid interest payment coverage, while its debt is investment-grade rated by all three of the world’s leading credit-rating agencies. The company’s liabilities are dwarfed by its vast total assets, which total $44.3 billion.
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High And Growing Dividends
VICI’s current dividend yield is a very high 5.8%, far above the industry ratio of ~4%. Its earnings-based dividend payout ratio of 64.8% and cashflow-based payout ratio of 79% are very moderate for a REIT.
The company pays dividends in March, June, September, and December, with the annual payout increase typically occurring in September.
VICI has been growing its dividend at a rapid clip since going public seven years ago, with the payouts rising at a CAGR of ~8% (versus the peer average of 2.2% growth). Analysts are penciling in a ~5% dividend growth for the next couple of years. In the long term, the company is targeting to reach a 75% AFFO payout ratio. With ample financial flexibility and strong growth potential, VICI Properties can continue increasing its payout for years to come.
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Total Return in Focus
The REIT was added to the S&P500 index just before its stock reached an all-time high in August 2022. However, it has declined by about 18% since then, as rising inflation and the subsequent Federal Reserve’s interest-rate hikes have created a difficult environment for REITs across the board.
Negative investor sentiment towards REITs resulted in VICI’s ~9% decline in the past 12 months. However, the company has demonstrated its resilience, displaying a 100% occupancy ratio and a steady increase in revenues through all parts of the economic cycle. Besides, REITs have been a proven hedge against inflation, as they can increase revenues through repricing their rent. Other types of commercial properties, such as offices and malls, are suffering from weakening demand, depressing their ability to raise prices. VICI, on the other hand, with its growing portfolio of gaming, entertainment, and wellness properties, is well-positioned to continue clocking in rising revenues.
With interest rates expected to begin decreasing sometime this year, quality REIT stocks should see rising investor interest. Meanwhile, VICI’s share underperformance versus the S&P 500 has created a very attractive entry point into the stock of this high-yield dividend payer. VICI is currently trading at a trailing twelve-month price-to-earnings ratio of 11.3x, coming at the bottom of the price range for its peers in the industry. In addition, based on future cash flows, the stock is undervalued by approximately 55%, placing it firmly within the value category.
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Investing Takeaway
VICI Properties REIT has a robust portfolio of lucrative real estate assets that is expanding rapidly. With its triple net lease agreements over the long term, the company is poised to generate solid revenues for years to come. Given its track record of dividend payment increases, coupled with its current low valuation, strong finances, and profitable growth, we believe that VICI could be a great addition to long-term income portfolios.
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Dividend Investor Portfolio
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Portfolio News
¤ LyondellBasell (LYB) will go Ex-dividend on June 3rd, with the payment date on June 10th.
¤ BlackRock (BLK) will go Ex-dividend on June 7th, with the payment date on June 24th. In other company news, BlacRock’s iShares Bitcoin Trust has reached $20 billion in assets, becoming the world’s largest cryptocurrency ETF.
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Recent Trades
None at the moment, although we are considering adding a stock to our portfolio when the market conditions allow for an attractive entry point. Stay tuned.
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Portfolio Attributes
| Dividend Portfolio Yield |
Dividend Growth Rate | Annual Dividend Income |
| 3.72% | 8.33% | $3,736.00 |
| Yield-on-Cost Adjusted |
Weighted Growth | Equal-Weight 100K Portfolio |
Current Portfolio
| Name | EX-Dividend Date | Payment Date | Dividend Yield | Annual DPS |
| Automatic Data Processing (ADP) | Jun 14, 2024 | Jul 01, 2024 | 2.18% | $5.60 |
| Allianz SE ADR (ALIZY) | May 08, 2025 | May 13, 2025 | 5.25% | $1.50 |
| Amgen (AMGN) | May 16, 2024 | Jun 07, 2024 | 3.23% | $9.00 |
| BlackRock (BLK) | Jun 07, 2024 | Jun 23, 2024 | 2.68% | $20.40 |
| Edison International (EIX) | Jul 01, 2024 | Jul 28, 2024 | 4.29% | $3.12 |
| JPMorgan Chase (JPM) | Jul 05, 2024 | Jul 31, 2024 | 2.20% | $4.60 |
| Kroger (KR) | May 14, 2024 | Jun 01, 2024 | 2.02% | $1.16 |
| LyondellBasell (LYB) | Jun 03, 2024 | Jun 10, 2024 | 5.07% | $5.36 |
| Philip Morris (PM) | Jun 22, 2024 | Jul 11, 2024 | 5.82% | $5.20 |
| Qualcomm (QCOM) | May 30, 2024 | Jun 20, 2024 | 2.03% | $3.40 |
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Click here for more stock market analysis from TipRanks Macro & Markets research analyst Yulia Vaiman
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Disclaimer
The information contained in this article represents the views and opinions of the writer only, and not the views or opinions of TipRanks or its affiliates and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy, or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment, and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices, or performance.
