Sands Cash Flow Could Support Dividend, Says Moody’s

Posted on: October 17, 2024, 03:15h. 

Last updated on: October 17, 2024, 03:15h.

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

Las Vegas Sands’ (NYSE: LVS) rising free cash flow could support the casino giant’s ability to maintain and raise its quarterly dividend and repurchase shares.

Macau casino revenue GGR China
Sands China’s Parisian Macau on the Cotai Strip. Las Vegas Sands’ rising cash flow can support shareholder rewards. (Image: Nana Jover)

In a new report, Moody’s Investors Service said the Venetian Macau operator’s retained cash flow to net debt ratio could jump to 33% over the next 12 to 18 months from 28.8% at the end of the second quarter. That increase would be supported by ongoing recovery in Macau where the company’s Sands China unit runs five integrated resorts.

LVS has historically returned a significant amount of capital to its shareholders,” according to the ratings agency. “Partly mitigating this concern is that LVS’s consolidated earnings before interest, taxes, depreciation, and amortization (EBITDA) in normalized operating environments has more than covered cash outlays for cash dividends and distributions, maintenance capital expenditures, and the repurchase of common shares.”

Moody’s rates Sands “Baa3”, or one notch above junk territory, with a “stable” outlook.

Sands Dividend Outlook

After its payout had been suspended for more than three years as the gaming company sought to conserve capital during the early stages of the coronavirus pandemic, Las Vegas Sands restarted its quarterly dividend in August 2023.

The resumption was to the tune of 20 cents a share per quarter — an amount that remains in place today. Prior to the global health crisis, LVS was a steady grower of its payout and one of the highest-yielding names in the gaming industry. Today, the shares yield 1.58%. Moody’s said the company’s payout costs $150 million per quarter.

The research firm added it’s possible Sands China restarts its dividend in 2025 — an outlook that jibes with what’s been put forth by Wall Street analyst. Currently, the Londoner Macau operator is one of three Macau concessionaires that doesn’t pay a dividend and the only of the three US-based operators with Macau exposure that doesn’t have a payout. Melco Resorts & Entertainment (NASDAQ: MLCO) and SJM Holdings also don’t pay dividends.

Moody’s pointed out that rising free cash flow could support Sands’ ability to repurchase its stock, which it has done to the tune of $1.36 billion over the past year. The operator has $645 million left on a previously authorized buyback program.

Sands Has Strong Liquidity

Sands’ liquidity position is robust with Moody’s pointing out the operator has $4.7 billion in cash on hand and $4.4. billion undrawn on a revolving credit facility. The company is expected to spend $1.5 billion this year with the bulk of that directed to Londoner Macau and Marina Bay Sands in Singapore. Expenditures for 2025 are expected to decline to $1.15 billion.

A potential threat to Sands’ credit rating is big spending on new projects, which Moody’s says would likely be fund with debt. The operator is vying for a casino permit in New York and has expressed interest in Thailand.

From a credit perspective it’s potentially concerning that LVS “will continue to pursue further and significant global casino resort development opportunities that will likely be funded largely with debt, leading to temporary leveraging,” concluded Moody’s.