3 reasons to buy Vici stock like there’s no tomorrow

Looking for a new choice to generate income? I’m there, to be sure. But with interest rates still near multi-year highs, the yields on most dividend stocks look oddly low. You might want to look a little off the beaten path if that’s the kind of exploit you want to add to your portfolio.

Income-oriented investors should consider a new stake in a named company Vici properties (VICI -0.54%) sooner rather than later. It’s a lot tougher than it looks like it should be on the surface.

What is Vici Properties?

Never heard of it? Don’t sweat. Most investors probably didn’t. While its $33 billion market cap isn’t small, it’s nowhere near the size of the tech giants dominating the headlines these days.

It is a real estate investment trust (or REIT) first and foremost. These are organizations that own real estate for rent, transferring most of their rental profits to shareholders in the form of dividends. The focus of REITs can range from hotels to office buildings to shopping malls to apartments.

Even by REIT standards, Vici is relatively unique. Most of its revenue comes from the 54 properties that currently house a casino and, quite often, an associated hotel. Vici Properties does not own the casinos located on its land, to be clear. Rather, it leases these sites to operator-type tenants MGM Resorts and Caesars (although Vici and his tenants clearly have a common interest).

The company also owns a handful of non-gaming experiential sites, though these are only a fraction of its total business.

Wherever it comes, it comes reliably and more and more. Last quarter revenue hit $957 million, up 6.6 percent, despite new economic headwinds. Earnings per share improved from $0.69 to $0.71, of which $0.415 was distributed to shareholders as a dividend. Quarterly results and payouts extend long-term trends.

VICI revenue data (quarterly) by YCharts.

3 reasons to buy Vici shares

The REIT’s historical results are solid enough, but is Vici an above-average prospect that offers more than comparable alternatives? Yes, it is, for three reasons.

1. The gambling business is always growing

Vici’s top and bottom results are not directly determined by the casinos that operate on its properties. But there is an obvious connection between the two. If their gaming business is strong, its tenants are better equipped to pay their rent. A strong casino industry also creates opportunities to purchase and develop more properties in the future.

To that end, the US casino gambling business continues to perform surprisingly well despite the recent economic turmoil. The American Gaming Association reports that first-quarter U.S. gaming revenue hit a record $17.67 billion, up 26.1 percent year-over-year, driven by strong growth in sports betting, and higher for 13th consecutive month in March.

Second quarter results have not yet been released, but the industry’s hand continued to grow well into May this year. This persistent growth reflects the resilience of the businesses behind so-called “vice stocks,” which generally perform well even when other industries face cyclical headwinds.

2. There are several compelling growth levers to pull

While most of Vici Properties’ sales and profits are generated by its casino-related properties, the REIT understands that focusing exclusively on one industry is limiting and a bit risky. It also owns 39 experiential non-gaming properties plus four golf courses, diversifying its profit centers.

More such projects are on the way. It also facilitates a loan to Great Wolf Lodge to develop destination resorts on Vici land. Earlier this year, it took out a loan to finance the development of a Margaritaville resort in Kansas City, Kansas, which will be connected to a youth sports training facility and baseball center.

Sustaining such developments seems risky in an unstable economic environment such as the one we seem to be in. But things may not be as hectic as they seem. Inflation that has been plaguing consumers for several years now is finally easing, with the consumer inflation rate last month falling to a multi-year low below 3%.

What’s more, even before July’s inflation numbers were released, Deloitte said the US Financial Well-being Index for June hit a multi-year high. Intentions to spend on leisure travel were particularly strong, suggesting that Vici’s loans to future renters are actually sound investments.

3. Vici stock’s dividend yield is strong

Newcomers will be entering a REIT that has a solid 5.3% yield. That’s a yield based on a dividend, by the way, which has grown every year since 2019 and will likely continue to do so.

Accessibility is certainly no problem. Like last quarter’s dividends and earnings, Vici’s dividend payouts have historically consumed only about two-thirds of the REIT’s profits. The rest can be reinvested in the organization’s own development.

VICI Dividend Data by YCharts.

In this regard, Vici Properties has never had problems raising money to finance new projects — the market knows that this company chooses and plans its development wisely. Of course, with shares priced at just over 12 times the company’s trailing earnings and less than 12 times its forward earnings, investors know they’re getting a bargain, too.

Not great for growth, but great for revenue

Vici Properties is not necessarily right for everyone’s portfolio, to be clear. If you’re just looking for growth, while the Vici offers it, it doesn’t offer enough to fulfill that role. Consider another perspective.

If you’re looking for reliable dividends and respectable dividend growth, but can’t find great returns with most household names, however, Vici Properties is for you. The fact that the stock hasn’t moved much since it peaked in 2021, it just makes it that much more attractive now. The market is likely to start connecting all these dots soon enough.