A decade ago, the casino industry wasn't a place investors would look for a dividend of any kind, much less a dividend that could be in their portfolio for decades. But the industry is now generating so much cash and has so few opportunities for expansion that it's bursting with money.
Some of the biggest names in the industry are now paying dividends that are steadily growing each year, and I think Las Vegas Sands (NYSE:LVS), Wynn Resorts (NASDAQ:WYNN), and Gaming and Leisure Properties (NASDAQ:GLPI) boast dividends any investor should be interested in right now.
Las Vegas Sands
The biggest casino company in the world is Las Vegas Sands, which owns resorts in Las Vegas, Macao, and Singapore. It may be headquartered in Las Vegas, but make no mistake that this is an Asia-focused company. Eighty-eight percent of its adjusted EBITDA, a measure of cash flow coming from a resort and casino, came from Asia in the second quarter, and that's consistent with its performance the past few years.
You can see above that EBITDA can be lumpy over time, but long-term there are billions per year coming out of the company's casinos. This cash flow is ultimately what pays the dividend, which currently yields 5.8%.
What makes Las Vegas Sands such a great dividend stock today is that it has very few places to put the cash it generates to work besides investors' pockets. Macao and Singapore are now mature markets that only allow minimal investment, and the company doesn't have big expansion plans in Las Vegas. Outside of a $3.3 billion expansion in Singapore, Las Vegas Sands doesn't have any large capital commitments, and that will keep the dividend flowing for the foreseeable future.
Wynn Resorts operates in Las Vegas and Macao like Las Vegas Sands, but it's been spending more to expand its operations recently. The $2.6 billion Encore Boston Harbor opened this summer and a $400 million convention expansion will open in Las Vegas early next year. On top of U.S. projects, there are plans for another $2 billion expansion at Wynn Palace in Macao.
Wynn Resorts has been able to grow and pay a 3.8% dividend yield without adding debt because of the cash flow it generates from Las Vegas and Macao.
What's great about Wynn Resorts today is that we should see EBITDA rise over the next few years as new resorts ramp up, and that will help its ability to grow the dividend. Encore Boston Harbor is just getting started, the Las Vegas expansion is still a few months away, and Macao's build-out won't be done for a couple of years. If you want a growing dividend in casinos, this is a good bet.
Gaming and Leisure Properties
Betting on casinos can be a risky endeavor for investors because factors like luck on the casino floor and the economy can swing revenue and EBITDA wildly over time. But stocks like Gaming and Leisure Properties are a lot more stable because it's a real estate investment trust (REIT) that owns the real estate the casino operates in.
Gaming and Leisure Properties started as an offshoot of Penn National Gaming, but it's become a favorite REIT for regional casino companies to tap when they need financing. Pinnacle Entertainment used the REIT to pull money out of its operations before ultimately being acquired by Penn National. Eldorado Resorts used the REIT to acquire the real estate under Tropicana Entertainment's properties as part of its acquisition of the company last year.
As a REIT, Gaming and Leisure Properties has to pay out 90% of what it earns, and that's driving a 7.1% dividend yield today. If you're looking for a way to invest in the casino industry without betting on a risky casino stock, this is a great way to do it.
Casino dividends are a hidden gem
The casino industry hasn't been paying dividends for long because it's been pouring the money it's made into building larger and larger resorts around the world. But today the big investment opportunities have been developed and mature casino companies are like big cash machines for investors. That's why I like the industry as a source of dividends, and Las Vegas Sands, Wynn Resorts, and Gaming and Leisure Properties are the best in the group.