High-yield dividend stocks are often higher-risk bets. They tend to have higher dividend payout ratios, putting them at higher risk of reducing their dividends if they run into financial trouble.
However, a dividend reduction doesn't seem to be in the cards for Vici Properties (NYSE: VICI). The real estate investment trust (REIT) focused on casinos and other experiential property types has a very strong financial foundation backing its high-yielding dividend (recently over 5%). Because of that, it's a safe bet to produce lots of passive income in the coming years.
Growing stronger
Vici Properties recently reported strong second-quarter results. The REIT's adjusted funds from operations (FFO) rose 5.9% to $0.57 per share in the quarter. That easily covered its quarterly dividend payment of $0.415 per share, keeping its dividend payout ratio below its 75% target.
The company benefited from rent growth and new investments added to its portfolio over the past year. Roughly half of Vici Properties' long-term net leases tie rents to inflation. With inflation remaining elevated, rents are rising at a healthy clip. The REIT has also added several new properties to its portfolio over the past year, which are contributing to its growing income. Notable deals included:
- Century Casinos: Vici Properties acquired four casinos in Canada from Century Casinos in a sale-leaseback transaction for $162.4 million last fall. The deal was its third international transaction and expanded its relationships with an existing tenant.
- Bowlero: The REIT acquired 38 bowling entertainment centers in a $432.9 million sale-leaseback transaction with Bowlero. The transaction was its first in the family entertainment sector and could lead to additional acquisitions in the future.
- Chelsea Piers: The company converted an existing loan into ownership of the Chelsea Piers sports and entertainment complex in New York City.
Vici Properties also agreed to fund several development projects for various new and existing partners. Even with all these new investments, the REIT has maintained a strong balance sheet. It has an investment-grade credit rating with a leverage ratio within its 5.0 to 5.5 times target range.
A safe bet to continue growing
Vici Properties continued to make new investments in the second quarter. The REIT committed to deploy $950 million into two existing partners. It's providing $700 million to The Venetian Resort Las Vegas to fund several projects, including room renovations, gaming floor optimizations, and other enhancements. The company also made a $250 million credit investment into Great Wolf Resorts. These new investments will supply it with incremental income to support its growing dividend.
The REIT has ample financial flexibility to continue growing its portfolio of real estate investments. It ended the second quarter with about $3.4 billion of liquidity, including nearly $350 million of cash and $681 million of expected proceeds from stock sales. That gives it plenty of flexibility to fund its currently committed investments and new opportunities as they emerge.
Vici Properties should have lots of opportunities to continue growing in the future. Its existing relationships with operators provide it with built-in growth opportunities to fund future developments and acquire properties from its partners in sale-leasebacks. Meanwhile, its rents should continue rising, given the built-in growth from inflation escalators, which will increase from 50% of its leases this year to 96% by 2035.
The company's rising cash flow and rock-solid financial position should enable it to continue increasing its dividend. The REIT has grown its payout at a peer-leading 7.9% compound annual rate since 2018 and has increased its dividend in all six years since it came public.
Vici Properties generates a growing stream of income to support its high-yielding dividend. With a strong balance sheet and lots of room to expand, the REIT should have no problem continuing to increase its payout in the future. That makes it a very low-risk place to earn a lucrative and growing stream of passive income.
Should you invest $1,000 in Vici Properties right now?
Before you buy stock in Vici Properties, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Vici Properties wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $669,193!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. TheStock Advisorservice has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of July 29, 2024
Matt DiLallo has positions in Vici Properties. The Motley Fool has positions in and recommends Vici Properties. The Motley Fool has a disclosure policy.
