Markets today are full of warning signs for investors as the world sinks deep into chaos ensued by numerous factors. Covid-19 pandemic played its part and threw the world into a dark phase, the light had just started peeing through, that new problems rose. Russia invaded Ukraine, which fueled the already toughening economic conditions. Inflation is soaring, interest rates even more so, China is still in lockdown mode and there’s another outbreak; the monkey pox. Supplies of oil, energy products, food, and manufactured goods are short and the supply chain is tangled. The wider geopolitical and economic situation had caused investors to spark a huge sell-off in the stock market. Equities are falling down as the threat of a recession continues to loom overhead.
The investment environment such as the present calls out for defensive plays as risks become too high to deal with. In such a tough situation, the best hedge against inflation are stocks that pay regular and increasing dividends. As any other investment would bring just more risk but dividend-yielding ones would at least ensure some return. Thus, the first to come to mind is real estate investment trusts (REITs) which are long known for being the leaders among the market’s dividend payers. REITs have a predictable income and are required to distribute at least 90% of their profits to shareholders as dividends. Another major plus for owning REIT stock is that periods of higher inflation ensure continued profits as real estate and rents tend to go up. The higher rents and prices mean more money for REIT shareholders at times when most stocks are faltering. Among the most impressive REITS to own right now is a huge player on the Strip VICI Properties Inc. (VICI).
Following the acquisition of the Venetian and its associated Expo and Convention Center in 2021, VICI recently completed the $17.2 billion takeover of MGM Growth Properties. This has made the company the largest casino landlord on the Las Vegas Strip with the addition of 15 Las Vegas and regional casinos as well as roughly 41,000 hotel rooms and 1.2 million sqft. gaming space. Its portfolio now has names like Caesars Palace, Harrah’s, Excalibur, Luxor, Mandalay Bay, MGM Grand, Park MGM, and many others.
The company has now made its place in the S&P 500 and will flaunt the position on Wednesday, June 8, when the market opens. This news is the reason behind the latest uptick of the stock which had it rise by 6.91% in the after-hours on June 3. Currently, the stock is trading at a price of $33.81 after it gained a further 7.71% in the premarket today, at the last check.
Resilience & Dividend Growth
Over the last few years, VICI has proved its resiliency despite the pandemic bringing economies to a halt. The company collected 100% of its rent throughout the pandemic due to its operating excellence and liquidity of tenants. 80% of the company’s rent roll is on the S&P 500. The company has also continued growth in its annualized dividend per share as seen in the company charts below:
If the company was able to collect all its rent during the pandemic and in a timely manner it only suggests that in any further downturn VICI will continue to do so as well.
The latest dividend of $0.36 was paid in early April, at an annualized rate of $1.44 this results in a yield of 4.9%. This is 2.5x the average yield for S&P-listed companies.
The Business Model
The company has a triple net leasing model which is very efficient given the fact that VICI does not have to pay for any property upkeep expenses. In the triple net leasing model, tenants rent entire commercial buildings and pay for all of the property expenses. Moreover, its lease term is very long compared to its peers with an average term of 43.2 years while rents can be increased by an average of 1.8%.
VICI’s Financial Overview
In the first quarter of 2022, the company’s revenues grew by 11.3% YOY to $416.6 million. This surpassed the consensus estimate by 1.42%.
Furthermore, the net income and FFO (funds from operations) were $240.4 million. Thus, the adjusted FFO per share of 44 cents was just in line with analysts’ expectations for the quarter.
At the end of the March quarter, VICI had cash and cash equivalents of $568.7 million, $5.4 billion in debt, and $3.5 billion in liquidity. Availability under its Revolving Credit Facility and Delayed Draw Facility was $1.9 billion and $1.0 billion respectively.
VICI now expects an adjusted FFO of $1,660.0-$1,690.0 million for the full year against the previous $1,317-$1,347 million. The adjusted FFO per share is now pegged at $1.89-$1.92 against $1.80-$1.84. Analysts, on the other hand, have their FFO per share placed at $1.96 for the full year.
Amid the current market situation, VICI comes to be a great dividend stock to hedge against inflation and uncertainty. Its strong financial profile, continued dividend growth, business expansion, and resilient business model are some of its strong points. Some notable names like Steve Cohen, Eduardo Abush, and George Soros, have recently bought a stake in the company as a long-term inflation hedge. The stock also holds an overweight (Buy) rating from JP Morgan with a bullish outlook and price target of $35. Thus, VICI is a good stock to have in one’s portfolio in the current uncertain times.