Gaming REITs MGM Growth, Vici Properties Raise Dividends, Both Yield More Than Double 10 Year Treasuries

Posted on: September 15, 2019, 02:00h. 

Last updated on: September 14, 2019, 11:18h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

MGM Growth Properties (NYSE:MGP) and Vici Properties (NYSE:VICI), two of the three domestic gaming real estate investment trusts (REITs), announced dividend increases this week.

Investors betting on casino owners are being rewarded with higher dividends from MGP and Vici. (Image: Travel Channel)

MGP’s dividend increase was modest, with the company boosting the quarterly payout to 47 cents a share from 46.75 cents. While that works out to be an increase of just a penny per share, it’s the ninth time the real estate company has increased its distribution.

MGP owns the Luxor, Mandalay Bay, Mirage, and New York New York on the Las Vegas Strip, counting MGM Resorts (NYSE:MGM) as its primary tenant. The REIT was spun off from the gaming operator nearly three and a half years ago.

On an annualized basis, the dividend of $1.88 represents an increase of $0.01 per share,” said MGP in a statement. “This is the 9th dividend increase since MGP’s initial public offering in April 2016.”

The new dividend will be paid on Oct. 15 to shareholders of record on Sept. 30. Vici Properties, the owner of Caesars Palace and Harrah’s on the Strip, raised its quarterly dividend to 29.75 cents a share from 28.75 cents. That marks the second payout increase since the real estate company was separated from Caesars Entertainment (NASDAQ:CZR) in February 2018.

Vici’s new dividend, which takes the distribution to $1.19 a share per year, will be paid on Oct. 10 to investors owning the stock by Sept. 27.

Better Than Treasuries

Based on the new dividend, MGP would yield 6.13 percent, while Vici’s yield would climb to 5.46 percent based on Friday’s closing price of $21.76. Not only do both gaming REITs sport payout yields well in excess of traditional real estate indexes, the stocks also yield much more than 10-year Treasuries.

Government bond yields surged Friday, meaning the prices of that debt declined. But the 1.90 percent yield on 10-year Treasuries is a pittance compared to what’s offered by MGP and Vici. The Dow Jones US Real Estate Index, a widely followed basket of REITs across various industries, has a dividend yield of just 2.82 percent as of Sep. 13.

Due to the capital intensive nature of the real estate business, REITs are usually inversely correlated to interest rates. That means the asset class typically performs better when rates are declining than when borrowing costs climb. The Federal Reserve lowered its benchmark lending rate by 25 basis points in July and is widely to expected to trim again before the end of this year.

Shares of MGM Growth Properties and Vici are up an average of 15.47 percent this year, but both trail the 17.15 percent returned by Gaming and Leisure Properties, Inc. (NASDAQ:GLPI), the other US gaming REIT.

Acquisitions Helping

“Increasing the dividend is driven by the income earned from the acquisitions we have closed since our last increase and by our continued commitment to a balanced capital allocation approach,” said Vici CFO David Kieske.

Vici has been on a shopping spree this year. In May, real estate firm purchased the Greektown Casino in Detroit. The next month, the company partnered with Century Casinos to buy three casinos from Eldorado Resorts (NASDAQ:ERI) for $385 million.

When Eldorado announced its $17.3 billion takeover offer for Caesars, Vici announced it would acquire the real estate of Harrah’s New Orleans, Harrah’s Laughlin, and Harrah’s Atlantic City. Related to the Eldorado/Caesars deal, Vici is positioned to potentially acquire other venues, including up to two on the Las Vegas Strip, should Eldorado need to part with some properties to consummate the Caesars transaction.