With many of the best businesses in the world comprising the Nasdaq Composite, it shouldn't come as a shock that the index has done quite well in the past five years: A $10,000 investment would now be worth $18,000 with dividends reinvested.
What may come as a surprise is that the experiential real estate investment trust (REIT) Vici Properties (VICI -0.28%) has done even better during that time. A $10,000 investment made in the stock five years ago would be valued at $20,000 today, with dividends reinvested.
How did Vici Properties beat the Nasdaq Composite? And can it keep doing so in the future? Let's look at the company's fundamentals and valuation to answer these questions.
The house always wins (and so does its landlord)
A common phrase associated with casinos is, "The house always wins." This means that even if a player wins a bunch of money while gambling, casino games are set up so the business still turns a profit. Casinos use probability to stack the deck in their favor. And this is what makes it especially lucrative to own the underlying property on which a casino operates.
Vici Properties owns 50 properties throughout the United States and Canada, with more than 60,000 hotel rooms and over 450 restaurants, bars, and nightclubs. The company's portfolio includes the likes of world-class properties like The Venetian Resort Las Vegas, Caesars Palace, and The Mirage. Because these properties offer something for everyone, it shouldn't come as a surprise to learn that tens of millions of people visit Vici's properties each year.
Both Vici Properties and its tenants know the draw of such remarkable real estate. This is why both parties agree to exceptionally lengthy average triple net lease terms (over 40 years in length), with 96% of leases set to be linked to inflation by 2035. The profitability of Vici Properties' real estate for its tenant operates also explains how the company has collected 100% of its rent to date since its formation in 2017.
Steadily rising rent, paired with such tremendous consistency in rent collection, has led the REIT's adjusted funds from operations (AFFO) per share to surge 35% higher from 2018 (its first full year of results) to $1.93 in 2022. And based on the company's 2023 midpoint guidance, similar growth is expected to continue: Vici Properties anticipates that its midpoint AFFO per share will compound by 9.6% over 2022 to $2.115 in 2023.
Image source: Getty Images.
A massive and sustainable payout
Boasting a 4.8% dividend yield, Vici Properties offers triple the starting income of the S&P 500 index's 1.6% yield. And with the quarterly dividend per share growing from $0.16 in 2018 to the current rate of $0.39, the company hasn't lacked dividend growth, either.
Given that Vici Properties' dividend payout ratio is on track to remain at its 75% target in 2023, dividend growth should be healthy moving forward as well. This is why I would expect the company's dividend to grow at a mid- to high-single-digit clip annually for the foreseeable future.
The REIT is a buy
Shares of Vici Properties have gained 13% in the past 12 months. But even with this rally, the stock still looks to be attractively valued enough to be a buy for investors seeking a mix of income and capital appreciation.
Vici Properties is trading at a 2023 price-to-AFFO-per-share ratio of just 15.3. Adding to the case that the stock is a buy, Vici Properties' trailing-12-month (TTM) dividend yield of 4.7% is in line with its 10-year median TTM dividend yield of 4.7%.
