If you're one of the tens of millions of Americans who have visited the city of Las Vegas in recent years, there's a good chance that you gambled or stayed at one of the properties owned by VICI Properties (VICI 0.50%).
The experiential real estate investment trust (REIT) owns a portfolio of iconic Las Vegas and regional properties throughout the U.S., including Caesars Palace Las Vegas, Harrah's Las Vegas, and the Venetian Resort Las Vegas.
According to the numerous analysts who follow the stock, it also has tons of potential for capital appreciation in the near future. Let's dig into a few reasons that make VICI Properties a no-brainer real estate stock buy.
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Inspiring confidence in analysts
As evidenced by its well-known properties, VICI Properties' portfolio was quite strong by itself. And with its previously announced acquisition of MGM Growth Properties (MGP) set to close in the first half of this year, VICI Properties will own even more world-renowned properties. These include the MGM Grand and Mandalay Bay.
Analysts seem to be convinced that VICI Properties is a bargain. The average analyst 12-month price target among 20 analysts is $35.23, which implies 30% upside from the current $27 share price. VICI Properties' potential gains at the low-end $31 12-month price target is 15%, whereas VICI Properties could rocket 70% higher, if the $46 12-month price target is correct.
VICI Properties' $1.82 midpoint for adjusted funds from operations (AFFO) per share in 2022 would represent no growth over the 2021 base of that same amount. But it's important to understand that VICI Properties expects its weighted-average share count to surge 27% higher from 2021 to 733.7 million in 2022. This is because the company issued shares last March and September to fund its acquisitions of the Venetian Resort (the transaction was completed in late February of this year) and MGM Growth Properties.
But starting in 2023, VICI Properties will benefit from a full year of ownership of the Venetian Resort and MGM Growth Properties to more than offset the higher share count. Next year, I anticipate that the stock's AFFO per share compound annual growth rate will accelerate from the already impressive 10.7% posted over the last three years.
Given VICI Properties' fundamentals and the fact that the stock reached a 52-week high of $33 a share last June, analysts' estimates seem reasonable to me.
A huge dividend that isn't a mirage
Yield-thirsty investors often turn to yield traps whose payouts look safe at a glance. Unfortunately, these dividends are eventually cut and turn out to be an optical illusion, much like the mirage of a sheet of water in the middle of the desert. The good news is that VICI Properties' market-squashing 5.3% dividend yield appears to be sustainable.
This is because the stock's dividend payout ratio in 2021 was 74.2%. This allows VICI Properties to retain plenty of capital to repay debt and execute acquisitions in the future to keep growing its AFFO per share. And it also protects the payout from a cut in the event of a temporary decline in earnings capacity stemming from a recession.
A quality REIT to help you sleep well at night
VICI Properties is trading at a price-to-AFFO per share ratio of just 14.8, which is low for the stock's growth profile and quality. The worst-case scenario for shareholders is that the average 12-month analyst price target proves to be incorrect and VICI Properties' stock stays right around where it is today, but they still get to collect a large, secure dividend.
But given the stock's modest valuation and strong fundamentals, I'd be surprised if VICI Properties didn't benefit from market-beating share price appreciation in the near future. That's what makes VICI Properties a compelling buy for income investors looking for a stock with room to run as well.
