Gaming and entertainment stock VICI Properties has one of the highest yields in the S&P 500. Plenty of Wall Street analysts think it's a bet worth making anyway.
VICI, a real estate investment trust, owns 63 casinos and other gaming facilities, including iconic Las Vegas destinations like Caesars Palace, the MGM Grand and the Venetian resort. It also owns 40 more entertainment properties, such as golf courses and bowling alleys.
Business in Las Vegas isn't what it once was, thanks to stiff competition from online gambling and a tourism slump linked to President Donald Trump's trade and border policies, among other factors.
Shares of VICI have tumbled more than 20% in the past year, pushing its dividend yield up to 6.9%, among the highest on the market.
That should be a warning to investors, since unusually high payouts often signal a yield trap-a stock whose dividend looks generous because it's unsustainable or because its share price is falling, leading to subpar total returns.
Still, among the market's highest yielding stocks VICI is unusual, because many of its fundamentals appear sound.
Wall Street analysts expect funds from operations, the real estate industry's equivalent to profit, to grow 3% in 2026 and 2027. That's hardly exciting in a market dominated by expanding tech profits, but also not a red flag. Meanwhile, VICI generated $2.6 billion in free cash flow over the past 12 months, easily enough to cover the cost of its $1.9 billion-a-year dividend.
All-in-all, Wall Street is fairly bullish on the stock. Of 24 analysts that cover the stock, 16 are Buys and eight are Holds. There are no Sells. The average price target is $32.50, about 24% above the share's current trading price of $24.
So what's not to like? Despite the solid-looking numbers VICI may be riskier than it looks at first glance, and investors need to weigh those risks.
While many of VICI's properties are Las Vegas crown jewels, there is a big downside to that concentration. About 70% of VICI's rents come from just two tenants: Caesars Entertainment and MGM Resorts.
Both stocks have struggled amid the weak Las Vegas climate and recently faced added uncertainty as takeover targets. Caesars agreed to be taken private by Houston-based Fertitta Entertainment in an $18 billion deal this spring. MGM received a $12.4 billion offer from Barry Diller's internet conglomerate People Inc. in July.
One particular pain point is VICI's ownership of Caesars' regional casinos, where the properties' profits are barely covering their annual lease obligations and it is likely VICI will have to renegotiate some terms. The risks were a key factor for RBC Capital Markets Brad Heffern, who initiated coverage of VICI Properties in June at Sector Perform with a price target of $29.
"Caesars Regional coverage is difficult to look past," he explained.
VICI couldn't immediately be reached for comment.
Still, there is reason to be hopeful, especially for investors willing to sit out the Las Vegas slump.
Barron's argued that Las Vegas was due for a rebound in a cover story in April, thanks to good weather, moderate costs, and a focus on non-gambling attractions, such as world-class restaurants and professional sports.
That should benefit VICI, which has also been running its own diversification playbook, recently spending $430 million to acquire 38 Lucky Strike bowling and entertainment centers around the U.S. and $340 million for New York City's Chelsea Piers sports complex.
At the same time, VICI may be able to navigate its current troubles. In May, Fitch addressed the situation with the troublesome regional Caesars lease, while affirming VICI's credit rating.
"Fitch expects a negotiated outcome to preserve long-term lease economics and avoid a material weakening of VICI's credit profile, particularly given the strategic importance of the assets and alignment between landlord and tenant," the rating agency said.
Others note the structure of VICI's leases should help it weather ups and downs in the Vegas tourist market. VICI's portfolio consists entirely of so-called triple-net leases, which mean the tenant is on the hook for taxes, insurance and maintenance, leaving less risk for the property owner.
What's more, just under half of VICI's rent roll includes automatic inflation-linked increases; and the proportion is set to grow to more than 80% in the next decade.
Capital One analyst Daniel Guglielmo rates the stock Overweight, with a $36 price target, representing 28% upside on the current price.
"VICI's dividend yield is extremely attractive at 6.85%," he wrote, following the company's second quarter earnings report in July. "The AFFO per share growth engine has slowed given VICI's size and the deals out there, but at that yield you are getting roughly 2.0% to 3.0% average annual escalators on leases that are well defended with strong tenants in industries that are seeing improving fundamentals."
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