I love to collect passive income, and I'm always adding income streams to my portfolio. The most recent addition was VICI Properties (VICI 0.02%), a real estate investment trust (REIT) that owns one of the largest portfolios of gaming, hospitality, and entertainment destinations. While I'm not a gambler, I think the REIT's 5%-yielding dividend is a safe bet these days.

A high-quality portfolio to support its big-time dividend

VICI Properties owns the largest experiential real estate portfolio in the country. The REIT has 43 properties across 15 states. These properties feature:

  • 58,700 hotel rooms.
  • 3.8 million square feet of gaming space with 61,000 gaming units.
  • 6.7 million square feet of meeting and convention space.
  • Over 450 food and beverage outlets.
  • Over 50 entertainment venues and four golf courses.
  • About 500 retail outlets owned by retail real estate leaders Simon Property Group and Brookfield Asset Management.

The company's portfolio includes several iconic gaming properties along the Las Vegas Strip, including The Venetian Resort, MGM Grand, and Caesars Palace. VICI Properties also owns gaming assets in several other markets around the country.

The REIT leases these properties to well-known casino operating companies, led by Caesars Entertainment and MGM Resorts at 42% and 36% of its annual cash rent, respectively. It signs triple net lease (NNN) agreements that supply it with very steady rental income because the tenant is responsible for maintenance, real estate taxes, and building insurance. These leases have an average remaining term of more than 40 years and feature annual escalation clauses, the bulk of which rise with the inflation rate over the long term. As a result, VICI's existing portfolio will generate stable cash flow that will steadily increase over the years.

VICI targets to pay out about 75% of its adjusted funds from operations (AFFO) to support its dividend. That's a conservative level for a REIT. It enables the company to retain some cash to maintain a strong balance sheet and continue expanding its experiential real estate portfolio.

A myriad of growth drivers

While VICI Property's 5% dividend yield is an attraction on its own these days, that's not the only reason I wanted to add the gaming REIT to my portfolio. I also love its growth potential. VICI has doubled its dividend payment since its initial public offering (IPO) in 2018, driven by steadily rising rental income from its existing properties and new ones it has acquired over the years. Overall, the REIT has spent $29 billion to add 29 assets to the portfolio, led by its $17.2 billion acquisition to acquire fellow gaming REIT MGM Growth Properties earlier this year.

The company expects to continue growing, driven by the six pillars of its external growth strategy:

  • Embedded growth pipeline: The REIT has secured the right to buy several properties.
  • Property growth fund: The company funds growth opportunities and capital improvements that benefit tenants while earning an attractive return for VICI.
  • Roll-up/roll-out opportunities: It can help gaming and non-gaming operators roll-up rivals and roll out new locations.
  • Gaming opportunities: The company can acquire additional gaming properties in the U.S. or overseas.
  • Leisure and experiential assets: The company has started investing capital outside the gaming industry and could continue diversifying into new asset classes.
  • M&A: The REIT's increased scale could enable it to make additional large-scale acquisitions of public and private companies.

VICI Properties recently further showcased its ability to expand into new asset classes by entering the destination golf experience sector through a transaction with Cabot. The companies entered into a delayed draw term loan facility for up to $120 million and a purchase and sales agreement. VICI will acquire some of Cabot Citrus Farms' real estate assets while helping fund new developments that the REIT can purchase in the future. Deals like this will help grow its cash flow in the near term, with long-term upside potential giving it multiple drivers for future dividend growth. 

Adding another long-term income producer

VICI Properties represents the type of investing wager I love to make, low risk with a high probability of paying off. The REIT pays an attractive dividend that seems likely to continue growing in the coming years. That's why I'm happy to add it to my portfolio and look forward to all the passive income it will produce in the future.