Falling Growth Share Drops 12%, Offering Current Purchase Opportunity
In the realm of real estate investment trusts (REITs), Vici Properties (VICI) has been flying under the radar lately. This younger, appealing player, specializing in experiential properties like casinos, has seen its stock slide nearly 12% over the past six months, while the S&P 500 index casually crept up by less than 2%. But fear not, investors, for I believe Vici is a hidden gem waiting to be discovered.
Why the pessimism, you ask? Well, some folks are worrying about an uptick in inflation dampening Vici's fundamentals. But let me tell you, this stock is a definite buy, and here's why:
Let the good times roll
First off, Vici boasts an enviable collection of top-notch entertainment facilities. Its portfolio includes primo positions on the Las Vegas Strip, where it owns and leases iconic properties like Caesars Palace, operated by Caesars Entertainment, the MGM Grand guided by MGM Resorts International, and the Venetian Resort run by Apollo Global Management.
In the casino game, this trio is unbeatable. To freshen things up, Vici also manages a diverse assortment of other entertainment properties, such as a 38-property chain of bowling alleys run by Lucky Strike Entertainment.
Thanks to a robust, growing economy, Americans have more pocket money to spare for amusement. The casinos are buzzing, and those bowling alleys are ripe with strikes and spares. Vici's long-term, triple-net leases, in which tenants pay rent plus key property-related expenses, contribute to the operator's steadily improving bottom line.
In its latest quarter, Vici's revenue soared practically 7% year-over-year, hitting close to $965 million. That jump in revenue was mirrored by an even healthier increase in adjusted funds from operations, which rose over 8% to just under $594 million.
When a REIT is on a revenue growth spurt, you can be darn sure it's dolling out more in dividend payments. After all, REITs are obligated to dispense at least 90% of their taxable income. Since debuting on the stock market in early 2018, Vici has dished out dividend raises at least once a year. Over that stretch, its payout has skyrocketed, from an initial $0.16 per share to its current level of just over $0.43.
That translates to a dividend yield of almost 6%, far higher than the typical payout of a blue-chip stock. Other REITs might boast even higher yields, but none have a stronger, more centered portfolio in the entertainment niche.
The fun advantage
I think Vici's stock has become a victim of investor apprehensions about the state of the economy, both in the past and the future. When inflation was higher than it is now, some fretted about its impact on discretionary spending. As for the near future, we're on the cusp of a new presidential administration that could possibly reignite inflationary growth if it follows through on proposed tariffs on foreign goods.
But fear not, for the most popular entertainment venues have traditionally proven to be resilient in the face of such economic headwinds. In tough times, people crave escapes -- and what better way to do so than with a trip to a Vegas casino, where discipline and a clear head can result in some fun rounds of games?
Vici is the undisputed king of such facilities, and it's gotten quite good at maximizing its take from them. This hidden gem is an underappreciated stock, and I have no doubt that more investors will eventually recognize its true value. That's why I firmly believe it's a buy now.
Sources:1. YCharts, as of 12/13/20242. Horizon Investments3. Vici Properties earnings release, second-quarter 20244. YCharts, as of 12/13/20245. Vici Properties investor presentation, 2024
Despite the inflation concerns, Vici Properties' portfolio of top-notch entertainment facilities, such as casinos and bowling alleys, has proven resilient in tough economic times. Investors should consider the company's steady revenue growth, robust bottom line, and attractive dividend yield as reasons to buy Vici Properties as a hidden gem in the entertainment REIT sector.
Given the company's unbeatable position in Las Vegas and its diverse assortment of entertainment properties, Vici Properties is well-positioned to continue generating revenue and dividends even in times of economic uncertainty. Investors seeking exposure to the entertainment sector may find Vici Properties to be an attractive buy, offering both yield and growth potential.
