4 Reasons to Buy Vici Properties Stock Like There’s No Tomorrow

Vici Features (VICI 0.69%)A real estate investment trust (REIT) that owns casinos and entertainment properties in the U.S. and Canada is generally considered a stable dividend play. Over the past five years, the stock is up nearly 30%, with reinvested dividends pushing its total return to nearly 70%.

Some investors may be reluctant to buy Vici as it trades near its all-time high, but I believe it is still an intriguing buy for four simple reasons.

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1. As interest rates fall, REITs will become more attractive

REITs purchase a large number of real estate, rent them out and share the rental income with their investors. To maintain a favorable tax rate, they must distribute at least 90% of their pre-tax earnings as dividends to investors. For this reason many REITs Pay such high dividends. Vici currently pays a forward dividend yield of 5.5%, compared to the 4.4% yield for the 10-Year Treasury.

Over the past two years, many REITs have been struggling as rising interest rates have made it harder to buy new properties, creating more downside for their tenants and driving yield-seeking investors into risk-free CDs and Treasury bonds. However, as interest rates fall, these negativities are expected to dissipate and the bulls will come back.

2. Vici has a resilient and diversified portfolio

Vici owns 93 properties in the United States and Canada. Among its best tenants Caesar’s Entertainment, MGM Resorts, Penn EntertainmentAnd Century Casinos. Many of the top casino resorts in Las Vegas, including Caesars Palace, MGM Grand and the Venetian, lease their properties.

Vici’s heavy involvement in the gaming industry may seem risky, but casinos are generally resilient to recessions. It locks its tenants into decades-long leases, and complex real estate regulations for the gaming industry give it a wide moat and limit its tenants’ ability to change their businesses.

That’s why Vici has maintained 100% occupancy since its initial public offering in 2018, even as the COVID-19 pandemic shook the travel, hospitality and casino gaming markets. Most of Vici’s long-term leases are tied to the consumer price index (CPI), so he can continually increase his rent to keep up with inflation. This makes it more resilient to inflationary headwinds than other REITs that do not provide CPI-linked rentals. To top it off, Vici is a threesome net rent A REIT means that its tenants are responsible for paying all property taxes, insurance costs, and maintenance fees for a property.

3. Vici’s earnings growth is steady and valuation is low

REITs are generally not valued based on their earnings per share (EPS) because they continue to issue new shares to finance real estate purchases. Instead, they measure their growth against their own merits. funds from operationsor cash generated from its principal activities, excluding gains or losses on property sales.

From 2018 to 2023, Vici’s adjusted funds from operations (AFFO) per share grew at a steady compound annual growth rate (CAGR) of 8.5%. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), which cuts through most of this noise, rose at a CAGR of 32%.

At $32 per share and an enterprise value of $50.7 billion, Vici’s shares still look cheap at 15 times last year’s AFFO per share and 17 times adjusted EBITDA. Real Estate IncomeSomeone world’s largest REITsIt trades at 14 times last year’s AFFO per share.

4. Vici Properties has stable dividend growth

Vici has increased its dividend every year since it went public six years ago. It is committed to returning at least 75% of its AFFO to its investors as dividends. As interest rates fall, this large dividend will become much more attractive to income investors.

Vici is a smart buy for income investors

Vici isn’t a high-growth stock, but it’s a great opportunity for income-focused investors who want predictable long-term returns. Therefore, I believe it is a good idea to invest in this stock before the Fed lowers interest rates again and drives more investors into REITs.