Analyst Predicts Substantial Growth for Las Vegas Sands Dividend

Posted on: June 5, 2019, 11:23h. 

Last updated on: June 5, 2019, 11:23h.

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

When it comes to gambling, it is said the “house always wins,” but investors in select casino stocks can get the house to pay them via dividends. At least one analyst views Las Vegas Sands (NYSE: LVS), the largest US casino operator by market capitalization, as a potentially compelling dividend growth story.

Las Vegas Sands stock gaming industry
Las Vegas Sands is poised for growth, so says an analyst. (Image: John Locher/AP)

In addition to a special dividend of $2.75 per share, Sands initiated a quarterly dividend of 25 cents, or $1 per year, in 2012. Today, the owner of the Palazzo and Venetian hotels in Las Vegas, delivers a quarterly payout of 77 cents per share, the equivalent of $3.08 annually, meaning the company’s dividend has more than tripled since 2012.

A dividend tripling in seven years is impressive, but it is possible Sands can deliver more payout growth, potentially tripling its dividend over the next decade.

We project the company to more than double its dividend to over $7.00 per share in 2028, supported by its industry-leading balance sheet and regulatory intangible assets advantage,” Morningstar equity analyst Dan Wasiolek said in a note this week.

Sands’ Dividend Supremacy

Sands’ dividend profile compares favorably with its peer group. Since initiating the payout in 2012, the owner of the Marina Bay Sands casino and resort in Singapore has not cut or suspended the dividend. The same is not true of Sands’ rivals.

Wynn Resorts (NASDAQ: WYNN) slashed its dividend to 50 cents a share from $1.50 in 2015. The company has since raised the payout. MGM Resorts (NYSE: MGM) is showing commitment to dividend growth, but the Bellagio owner did not initiate a dividend until 2017, and its current quarterly payout of 13 cents a share is dwarfed by Sands’ dividend.

Wynn and MGM yield 2.66 percent and 2.03 percent, respectively, while the dividend yield on shares of Sands is 5.54 percent. Sands’ dividend yield is about triple the comparable metric on the S&P 500 and more than quadruple the dividend yield on the Consumer Discretionary Select Sector SPDR (NYSE: XLY). The consumer cyclical comparison is relevant because Sands and other casino operators reside in that sector.

Sands carries about $11.9 billion in debt, but that is less than the $15 billion in liabilities at MGM, and Morningstar’s Wasiolek points out the company is not highly leveraged and has a strong interest coverage ratio.

“In our view, Sands’ dividend growth potential is buoyed by its low 1.4 times 2018 leverage and solid interest coverage ratio that ended last year at over 8 times,” said the analyst.

How Asia Factors Into Sands’ Dividend

With the Palazzo and Venetian, Sands operates two of the premier, high-end Las Vegas Strip properties, but Wall Street has long viewed the company’s Macau and Singapore footprints as integral parts of the Sands investment thesis.

Sands’ dividend outlook is reinforced by its leading gaming share in Macau and Singapore, where demand far outstrips the limited number of gaming licenses awarded by the government,” according to Wasiolek.

Sands is also among the major US operators bidding for a coveted gaming license in Japan, a potentially lucrative casino market.

“In our opinion, this leading presence will in turn allow Sands to win one of only two projected urban licenses in the large Japanese gaming market around 2025,” said  Wasiolek.