Bet on the Vegas Strip With This Income Stock

Key Points

• Vici Properties is the largest owner of casino real estate in the U.S., including a substantial portfolio on the Las Vegas Strip.

• Buoyed by strong adjusted funds from operations (AFFO) guidance and the possibility of more accommodative monetary policy, the REIT is trouncing broader real estate benchmarks this year.

• A steadily rising dividend and efforts to diversify beyond gaming properties could make Vici a long-term winner in the real estate sector.

• 10 stocks we like better than Vici Properties ›

Tourists visiting Las Vegas to try their luck at the tables or slot machines are likely to hear some folksy wisdom about the massive casino resorts dotting the Strip not being built on the backs of winners.

Prosaic or not, that's an accurate assessment of how the financial cards are dealt in Sin City and other casino hubs, but intrepid income investors visiting the U.S. gaming mecca may ponder who owns the buildings in which fortunes are made (for the gaming companies) and lost (usually by betters). In many cases, the answer is Vici Properties (NYSE: VICI).

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Spun out of Caesars Entertainment in 2017, Vici owns the property assets of some of the most iconic Las Vegas properties, including Caesars Palace, MGM Grand, and the Venetian, among many more.

Image source: Getty Images.

In industry parlance, Vici is what's known as an "experiential" real estate investment trust (REIT), meaning it's the landlord of places where people go to experience things, typically some form of entertainment. From that, novice investors might infer Vici is more of a discretionary spending story than it actually is, but the reality is different -- and that's a good thing.

Investors leaving Las Vegas, but Vici stands tall

Shares of MGM Resorts International are up 6.87% year to date, as of Sept. 4, while rival Caesars is down nearly 23%. Those are Vici's two biggest tenants. The Las Vegas Convention and Visitors Authority (LVCVA) recently sent an envoy to Canada in hopes of compelling our northern neighbors to return to Las Vegas.

Yet, Vici is trouncing the S&P 500 (SNPINDEX: ^GSPC). What gives?

The answer is simple: Vici doesn't need Las Vegas tourism to be brisk to make money. Tenants have to pay their rent, regardless of how their business is performing. That's how a REIT with 48% of its properties in Las Vegas outperforms, even when tourism there is lagging.

For the skeptics pondering Vici's ability to pass harsher economic tests than a dip in Las Vegas tourism, that question was answered during the darkest days of the coronavirus pandemic. Back then, Sin City tourism didn't just decline -- it was nonexistent. The lights were off at casinos there and across the country, but Vici collected 100% of its rent in 2020.

In fact, Vici emerged from the global health crisis stronger, enabling it to announce the $17.2 billion acquisition of MGM Growth Properties in August 2021. That deal made MGM the REIT's second-biggest tenant in terms of annualized cash rent and Vici the largest owner of Las Vegas casino real estate.

Vici's venerable dividend

One of the primary reasons investors tap real estate stocks is for dividends. The sector is home to Dividend Kings, and Vici is well on its way to joining that illustrious territory. On Sept. 4, the REIT said it's boosting its quarterly dividend to $0.45 a share, lifting the annual payout to $1.80 from $1.68. That represents approximately 80% growth since 2018.

Management acknowledges the gravity of the dividend. On Vici's first-quarter earnings conference call, CEO Edward Pitoniak highlighted the payout's "paramount importance" as a driver of the landlord's share price. He went back to that well on the second-quarter call, noting "the contribution of dividends to returns could rise demonstrably."

Of course, judicious equity income investors know that a company's ability to maintain current dividend obligations and steadily grow those payouts over the long haul are the factors that really matter. Vici provided a look into that by raising its 2025 adjusted funds from operations (AFFO) guidance to $2.35 to $2.37 a share from its prior outlook of $2.33 to $2.36.

Don't dismiss AFFO as just another investing acronym. It's crucial when it comes to REITs. It's what the pros rely on to assess a landlord's recurring outgoing capital, including the sustainability of the dividend.

Vici is about much more than Las Vegas

When discussing Vici, it's certainly noteworthy the REIT is the largest owner of Las Vegas Strip real estate, and running through its portfolio of properties there is perhaps a fun exercise for gamblers and fans of casino stocks. But make no mistake: There's more to the Vici story than Las Vegas.

In total, it owns the real estate of 54 gaming venues across 15 states and a single Canadian province, including some hinterland markets such as Indiana, Iowa, and Louisiana. There's room for growth in Las Vegas and beyond. There are more than 1,000 commercial and tribal casinos in the U.S., but Vici and rival Gaming & Leisure Properties combine to own just 122 of those venues.

Vici has another, arguably under-appreciated, feather in its cap. It owns and invests in a slew of properties outside the casino space. It owns 38 Lucky Strike bowling alleys. Nearly two years ago, it pledged $550 million for the famed Chelsea Piers in New York City, and in June, the REIT boosted its capital commitment in One Beverly Hills -- yes, in that Beverly Hills -- to $450 million from $300 million.

Vici has also extended financing to Canyon Ranch and Great Wolf Lodge, among others, confirming that while it's known as a gaming REIT, there are more chapters in its book.

So for investors (and betters) lamenting the age-old adage the "house always wins," don't worry. Consider betting on the owner of the house with Vici.

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Todd Shriber does not own any of the stocks mentioned in this article. The Motley Fool recommends Gaming And Leisure Properties and Vici Properties. The Motley Fool has a disclosure policy.