Many would not look at Vici Properties (VICI) as a sleep-well-at-night kind of stock. The company, an experiential real estate investment trust (REIT), holds the world’s largest gambling and resort properties portfolio, including some of the most recognizable ones, as shown below.
SOURCE: VICI PROPERTIES
Buildings like Caesars Palace, The Palazzo, and MGM Grand are not easily replaceable, and the land is in prime locations. Vici has also worked diligently to diversify, as was the case with the acquisition of MGM Growth Properties, which closed in 2022 and brought 15 properties on board. All in all, Vici is the landlord for 50 properties spread across 15 states and parts of Canada.
hese “trophy assets” are critical to the businesses they house (unlike an easily duplicated structure like a warehouse or office space), so even with most gambling shut down during the worst of COVID-19 in 2020, Vici Properties collected 100% of its rent and raised the dividend by 10.9%.
The REIT has collected 100% of the rent since its inception in 2017 and has 100% occupancy. Vici also has automatic escalators that increase rents when inflation is high, although these are subject to certain caps. These escalators are vital to keeping pace with the economy. The company reports that 50% of rents are inflation-protected this year and 96% over the long term.
Given Vici’s stellar track record and inflation protection, shareholders of this REIT can rest easy. Of course, no stock is risk-free, so investors should always diversify and use a strategy like dollar-cost averaging to reduce risk. That’s just smart investing.
Las Vegas is back!
Consumer sentiment is low, a recession might be coming, and inflation is still problematic, but Las Vegas is booming. The number of visitors was up 20% in 2022 to nearly 39 million, and the rise has continued so far in 2023, according to the Las Vegas Convention and Visitors Authority.
Pent-up vacation demand, historically low unemployment, or the city’s unique attraction could all be driving growth. It bodes well for Vici, its tenants, and increasing revenue, whatever the cause.
Vici offers a rising dividend
The REIT closed several deals in 2022 to bring more trophy properties into the mix, which increased revenue by 72% to $2.6 billion and adjusted funds from operations (AFFO) by 62% to $1.7 billion. On a per-share basis, AFFO rose to $1.93 from $1.82 in 2021. Vici forecasts an even larger increase in 2023 to at least $2.10 per share.
The company currently pays shareholders $1.56 per share annually, so the dividend is extremely well covered by AFFO. And another raise in 2023 looks like a lock based on the guidance. As shown below, Vici has increased the dividend yearly since its formation.
Vici’s growth plan includes expanding internationally, adding properties beyond the gambling sector (like lodges and golf resorts), and providing capital to tenants for expansion. By providing financing, tenants can expand existing resorts, and Vici will receive increased rents.
The dividend currently yields 4.7%, which compares favorably to the 4.2% yield from the Vanguard Real Estate ETF (VNQ). With its unique growth opportunities, tasty yield, and surprising safety, income investors should consider doubling down on Vici Properties.
–Bradley Guichard
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