MGM Growth Properties Dividend Undaunted by Coronavirus as Company Hikes Payout a Tenth Time

Posted on: March 14, 2020, 06:26h. 

Last updated on: March 16, 2020, 09:35h.

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

Count MGM Growth Properties (NYSE:MGP) among the companies not allowing the coronavirus pandemic to stand in the way of dividend growth.

MGM Grand owner MGM Growth Properties isn’t letting the coronavirus deter dividend growth. (Image: Fox Business)

The gaming real estate investment trust (REIT) said Friday it’s increasing its quarterly by half a cent to 47.5 cents a share, or $1.90 per year.

This is the 10th dividend increase since MGP’s initial public offering in April 2016,” according to a statement. “The dividend will be payable on April 15, 2020 to shareholders of record as of the close of business on March 31, 2020.”

Based on the Friday close of $23.21, MGP would yield 8.18 percent, up from 8.10 percent, when accounting for the newly higher payout.

Bold Move in Coronavirus Environment

Although MGP’s dividend hike is of the modest variety, it comes at a time when Wall Street is growing pensive about companies’ access to capital should the COVID-19 epidemic cause a recession. Against the coronavirus backdrop, prevailing sentiment in the investment community is a preference for firms with ample cash on their balance sheets and strong credit ratings.

This week, MGP’s primary tenant – MGM Resorts International (NYSE:MGM) – said it’s scrapping a $1.25 billion share repurchase scheme, citing adverse market conditions.

As the coronavirus outbreak has taken hold in the US, gaming REITs, such as MGP, are following their operator tenants to the downside. For example, shares of MGP are lower by 31.15 percent this month, and that’s with the benefit of Friday’s 20.32 percent gain, one accrued on more than triple the average daily volume.

That’s still a dismal month-to-date performance, but one that’s far less bad than MGM’s 54.13 percent decline since March 1. MGP’s dividend increase is useful for the cash-generating efforts of the former parent company because MGM owns a 55 percent stake in the real estate company.

Headwinds Linger

MGP generates about 40 percent of its lease income from the Las Vegas Strip, where it owns the property assets of Excalibur, Luxor, Mandalay Bay, MGM Grand, Mirage, and New York New York. Those properties, among other Sin City venues, have been beset by cancellations, closed venues and postponement since the coronavirus hit the US.

MGP also owns the real estate of Empire City in Yonkers, N.Y, MGM Springfield in Massachusetts, and MGM Northfield Park in Ohio, all of which have been temporarily shuttered because of the COVID-19 pandemic.

However, due to the nature of gaming REITs’ business models, temporary closures should have minimal to no effects on the companies’ revenue, because tenants must pay their leases regardless of the broader economic environment.

At the end of last year, MGP had $100.7 million in free cash. The company paid $533.47 million in dividends in 2019.