Here are my favorite high-yielding stocks as the Fed cuts rates

The days of investors earning a risk-free 5% return are coming to an end. The Federal Reserve raised the benchmark interest rate from 0.25% in early 2022 to 5.5% in July 2023 to curb inflation. As a result, certificates of deposit (CDs), treasuries, and even high-yield savings accounts have been great passive income vehicles.

However, with inflation back near 2.5%, the Fed cut interest rates by 0.5% in September, and the market expects a few more cuts in 2024 and 2025. It’s time to start thinking about other ways to generate quality income. Real Estate Investment Trust (REIT) Vici properties (VICI -0.46%) it is an excellent choice. Here’s why.

What is Vici Properties?

It pays to be unique in the real estate world. Office buildings and shopping malls generate income for owners, but they are easy to replicate and competition is fierce. These properties are also sensitive to economic downturns and telecommuting trends. Office buildings suffered especially during and after the pandemic. However, Vici collected 100% of rent during the peak of COVID-19, illustrating how resilient its cash flow is.

Vici owns some of the most recognized experiential properties in the world. In Las Vegas, it owns the MGM Grand, The Venetian, Mandalay Bay and several others, while owning other trophy properties in 26 states. Collecting 100% of rent when many casino resorts, including the entire Las Vegas Strip, are closed shows the importance of unique properties with well-financed tenants such as Caesars Entertainment and MGM Resorts International.

Las Vegas is booming. In 2023, it set records for gaming revenue and airline passengers and is among the fastest-growing metropolitan areas in the country. Gaming revenue is down modestly in 2024, but that shouldn’t concern Vici investors given its track record.

The downside to high profile properties is that they are in limited supply. Vici needs other ways to grow from here. Providing financing to existing tenants for expansion is one way Vici does this. For example, Vici invests in a tenant to expand facilities, then collects more rent from the larger space. It’s great for both parties because the tenant also increases the income from the addition.

Another way Vici grows is through diversification. It buys cottages, golf courses and water parks and looks to expand into college and professional sports.

The numbers say buy

Vici’s dividend has grown annually since inception at a compound annual growth rate of 7%, and the current yield is higher than average, as shown below.

VICI dividend yield data by YCharts

Other critical measures for REITs are funds from operations (FFO), which measures operating cash generation, and payout ratio, which measures the percentage of earnings paid out in dividends. The lower the payout ratio, the safer the dividend. Both values ​​are positive for Vici:

VICI Funds from Operations (TTM) data by YCharts

As you can see, funds from operations are growing and dividends are well covered. The 5% yields on CDs and Treasuries may be gone, but investors have other options. Vici offers investors a yield of over 5% and a steadily growing payout, making it a great income-generating investment.