VICI Properties: This Dividend Grower Is Still A Buy Now

seekingalpha09-04

Since my buy rating in July, shares of VICI Properties have rallied 20%.An ongoing shift from discretionary income spent on things to experiences is a positive for the REIT.VICI's leverage ratio held ...

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This was due to the acquisition of the remaining 49.9% stake in the MGM Grand/Mandalay Bay portfolio in January 2023. The acquisition of 39 Bowlero locations in October was another contributor. Annual rent escalators from other lease agreements also factored into this topline growth. VICI's income from loans a","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"BK4588":"碎股","CFA.SI":"NikkoAM-STC Asia REIT","BK4585":"ETF&股票定投概念","BK4234":"特殊用途房地产信托","BK4084":"特种房地产投资信托","VICI":"Vici Properties","BK4104":"贸易公司与经销商","BK4561":"索罗斯持仓","FAST":"快扣","BK4567":"ESG概念"},"translate_title":"VICI Properties：这家股息增长公司仍然值得立即买入","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"VICI":1,"CFA.SI":0.9,"FAST":0.9},"content_text":"Since my buy rating in July, shares of VICI Properties have rallied 20%.An ongoing shift from discretionary income spent on things to experiences is a positive for the REIT.VICI's leverage ratio held steady at 5.4 in Q2.Shares of the REIT could be priced at a 10% discount to fair value.VICI could be primed to deliver 30% cumulative total returns by the end of 2026.  A group of friends playing roulette at a casino. SolStock I've emphasized it in prior articles, and I'll emphasize it once more: It's hard not to win in investing with the right approach. For me, I have experienced a great deal of success by buying quality dividend growth stocks on sale. As a recap, here's what I generally mean by quality:  A business with a track record of consistent EPS/AFFO per share growth. This can support a growing dividend payout to shareholders. A company with a manageable payout ratio. This characteristic can protect the dividend from a cut in a temporary downturn and ensure continued growth when coupled with the first attribute. A business with an investment-grade balance sheet. That allows for a low cost of capital, which is important to the fundamental outlook.  VICI Properties (NYSE:VICI) is the latest example of what I mean. Since my buy rating in July, the REIT has surged 20% versus the mere 3% gains of the S&P 500 index (SP500). When I last covered VICI, I liked the story of Las Vegas' continued emergence as the true entertainment capital of the world. The company's BBB- credit rating from S&P on a stable outlook was a plus as well. Lastly, shares of VICI also looked to be moderately undervalued. Following the release of the REIT's second-quarter earnings on July 31st, I'm maintaining my buy rating. The company's revenue and AFFO per share both grew at healthy clips in the quarter. Recent research published by McKinsey demonstrates VICI has positive secular trends boosting it, too. Not to mention that the strength of the balance sheet is holding up. Finally, VICI's share price remains meaningfully below my fair value estimate. A Respectable Fundamentals Profile   VICI Q2 2024 Earnings Press Release VICI's second-quarter results revealed another winning hand. The company's total revenue grew by 6.6% year-over-year to $957 million in the quarter. For perspective, that was $3.3 million greater than Seeking Alpha's analyst consensus for the quarter. Additionally, VICI's weighted average share count only increased by 3.5% in that time. That shows the company's moves being made are accretive to revenue growth. What was behind VICI's decent topline growth during the second quarter? VICI's contractual leasing revenue rose by $41.9 million in the quarter. This was due to the acquisition of the remaining 49.9% stake in the MGM Grand/Mandalay Bay portfolio in January 2023. The acquisition of 39 Bowlero locations in October was another contributor. Annual rent escalators from other lease agreements also factored into this topline growth. VICI's income from loans and securities increased by $15.6 million for the second quarter. That was the result of greater funding of debt investments and partially countered by the full repayment of certain loan investments. Third, VICI's other income grew by $0.8 million during the second quarter. This was because of the assumption of sub-leases connected to the closing of the Rocky Gap Casino acquisition in July 2023 and the sale-leaseback deal with Chelsea Piers last December. VICI's AFFO per share rose by 5.9% over the year-ago period to $0.57 in the second quarter. That was made possible by a 170 basis point expansion in AFFO margin to 61.9% for the quarter. This is how AFFO per-share growth came in ahead of per-share revenue growth during the quarter.   VICI Q2 2024 Earnings Press Release The strength of these results prompted management to further boost its AFFO per share guidance for 2024. VICI upped its AFFO per share midpoint from the previous forecast of $2.235 ($2.22 to $2.25) to $2.25 ($2.24 to $2.26). This also includes the impact of the pending 18.9 million share issuance on the share count for the remainder of the year. The FAST Graphs analyst consensus of $2.26 for 2024 is in sync with this updated guidance. That would represent a 5.1% growth rate over the 2023 AFFO per share base of $2.15. Beyond just this year, VICI's outlook is also fair. One major catalyst that the company has going for it is a secular shift away from material goods and toward experiences. Before I provide data from recent McKinsey research from CEO Ed Pitoniak's opening remarks during the Q2 2024 Earnings Call, I think it would be helpful to hypothesize why this is happening. One reason for this favorable dynamic for VICI is that our society's relative abundance means that most people already have their share of material possessions. This takes away from the appeal of allocating more spending to things. After all, how many smartphones, laptops, televisions, etc. does one need? Not to mention that many consumer electronics products have also become cheaper and more powerful over time. That is probably another element behind this trend. As people are spending less real income on things, they have more to spend on the experiences that VICI has to offer. The Instagram age reinforces this for many people when they see their friends and acquaintances sharing their experiences on social media. This is my theory as to why Pitoniak noted that the share of the consumer discretionary income index back to 1959 spent on experiences has grown to almost 160. That's far more than the sub-75 index level spent on things. The continued shift in spending toward experiences should be a positive for VICI and its tenants. This explains why the FAST Graphs analyst consensus is that AFFO per share will increase by 3% in 2025 to $2.33. Another 3.6% growth in AFFO per share to $2.41 is currently being projected for 2026. Wrapping up my discussion of VICI's fundamentals, the company's financial health is stable. CFO David Kieske noted in his opening remarks that VICI's net debt to annualized second-quarter adjusted EBITDA ratio was 5.4. This is within the targeted range of between 5 times and 5.5 times. VICI's BBB- credit rating from S&P on a stable outlook explained the company's weighted average interest rate of merely 4.36% as of June 30. Put another way, VICI's low cost of capital allowed it to make capital commitments of $950 million in the second quarter. In tandem with annual lease escalators, these capital investments should bolster AFFO per share in the years to come (unless otherwise sourced or hyperlinked, all details in this subhead were according to VICI's Q2 2024 Earnings Press Release and VICI's Q2 2024 10-Q Filing). Moderate Appreciation Potential To Fair Value Remains   FAST Graphs, FactSet After its rally, VICI isn't quite the bargain that it was a couple of months ago. It remains buyable, though. VICI's current-year P/AFFO ratio of 14.8 is less than its seven-year average P/AFFO ratio of 16.2 per FAST Graphs. I have now upped my fair value multiple from 14.6 to 16.2. The latter estimate is in line with the seven-year average P/AFFO ratio per FAST Graphs. In July, I anticipated that interest rates would be somewhat higher than the seven-year average of approximately 2.3% according to data sourced from Macrotrends for the foreseeable future. Morningstar anticipates that the federal funds rate will fall to just 1.75% to 2% by year-end 2026. These lower interest rate projections can support higher valuation multiples for REITs, such as VICI. The REIT's 3.5% forward annual AFFO per share growth forecast is a bit diminished versus previous years. But in my view, the more favorable federal funds rate forecast compensates for it. After this week, the calendar year 2024 will be 69% complete. This means another 31% of 2024 and 69% of 2025 lies ahead in the next 12 months. That accounts for a $2.31 forward AFFO per share input (versus my previous $2.29). Using my fair value input, I get a fair value of $37 a share. Relative to the nearly $34 share price (as of September 3, 2024), that is a 10% discount to fair value. If VICI returns to fair value and meets the growth consensus, it could produce 30% cumulative total returns through 2026. A Secure And Market-Beating Dividend   The Dividend Kings' Zen Research Terminal VICI's 5% forward dividend yield is better than the real estate sector median forward yield of 4.2%. This justifies B grades from Seeking Alpha's Quant System for forward dividend yield and overall dividend yield. This generous payout also appears to be quite secure. VICI's AFFO payout ratio is poised to be in the mid-70% range in 2024. That's below the 90% payout ratio that rating agencies prefer from the industry, per The Dividend Kings' Zen Research Terminal. It's also right around VICI's targeted AFFO payout ratio of 75%. This builds a buffer into the dividend and explains the Quant System's B+ grade for dividend safety. That also bodes well for VICI's future dividend growth. This is why the Quant System continues to expect 5.2% annual forward dividend growth from the REIT. That's vastly superior to the real estate sector median of 3.1% and enough to earn an A grade for overall dividend growth from the Quant System. This puts VICI emphatically on pace to extend its six-year dividend growth streak (after the higher October dividend is paid). That's leagues above the 1.2-year sector median and sufficient for a B grade from the Quant System for overall dividend consistency. Risks To Consider VICI is undeniably a blue-chip REIT. However, it still comes with risks that are worth acknowledging and monitoring over time. Because I haven't identified any new risks, I'm going to reiterate the risks that I perceive as most pertinent to VICI. One notable risk to VICI is that 48% of lease revenue as of June 30 was derived from Las Vegas. A risk associated with operating in Las Vegas is that an estimated 90% of the city's water comes from the Lake Mead Reservoir. Las Vegas is taking steps to diversify via new water intake below the lake's surface, which could help the city's water supply for decades. Still, droughts could potentially lead to water rationing and have at least some impact on VICI's operating results. Additionally, this geographic concentration opens the company up to the risk of natural or man-made disasters (e.g., Hoover Dam failure or wildfires). If that happened, the damage to VICI's properties could be greater than its commercial insurance coverage. This could be a hit to the company's earnings capacity. Pertaining to concentration, tenant concentration and counterparty risk are significant risk factors. As of June 30, MGM Resorts International and Caesars Entertainment made up a combined 74% of the company's total annualized base rent. If either of these tenants encountered financial difficulties, VICI's rent collection efforts could be unsuccessful for the first time in its seven-year corporate history. That could materially alter the company's fundamentals. Summary: A REIT With Strong Total Return Potential In its corporate history thus far, VICI has grown its AFFO per share each year. This has translated into an admirable dividend growth record in that time. The company's balance sheet is also well-positioned for the future. Despite these advantages, VICI's shares seem to remain discounted.  That's why I'm glad to hold 1.6% of my portfolio in VICI and to have it as my 19th-biggest investment holding. It also underscores why I'm reaffirming my buy rating.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.26.4","shortVersion":"4.26.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2464723793"}