Many real estate investment trusts (REITs) stumbled in 2022 and 2023 as interest rates rose. Higher rates made it more expensive for REITs to acquire more properties, generated tougher macro headwinds for their commercial tenants, and made their dividends less appealing than interest payments from risk-free T-bills and CDs.
But in 2024, many of those REITs bounced back as the Federal Reserve cut its benchmark rate three times. It's expected to cut its rates at least two times in 2025, so the highest-yielding REITs might keep drawing back income-oriented investors.
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Therefore, REITs that have stable business models and consistently beat the 10-Year Treasury's 4.4% yield could be great income investments right now. One such REIT is Vici Properties (VICI +0.09%), which owns casinos and entertainment properties across the U.S. and Canada. So even if you have only $500 to invest, here's why Vici could be a great place to park your cash to earn a few extra dollars every year.
Why is Vici better than most REITs?
REITs have simple business models. They purchase a lot of properties, rent them out, and split that rental income with their investors. They also consistently dilute their investors by issuing new shares to raise fresh cash, but they also need to pay out at least 90% of their pre-tax net profit as dividends to maintain a favorable tax rate. In other words, REITs' share prices might stagnate, but the best ones usually lock in their investors with dependable dividends.
Many REITs, especially those that rent out their properties to consumer-dependent businesses, struggle during economic downturns. If their commercial tenants can't pay the rent, their occupancy rates decline and their profitability -- as measured with their adjusted funds from operations (AFFO) per share -- withers. That makes it harder to buy new properties.
NYSE: VICI
Key Data Points
Yet Vici doesn't suffer from any of those common REIT problems. Its top tenants include Caesars Entertainment, MGM Resorts, Penn Entertainment, and Century Casinos, and it locks those tenants into multidecade leases that are mostly pinned to the Consumer Price Index (CPI). Vici's sticky leases can't be easily broken, even if its tenants' profits fluctuate during economic downturns, and tethering its rent to the CPI ensures it always keeps pace with inflation. To top it all off, Vici is a triple net lease REIT, which means its tenants are responsible for covering all of their own real estate taxes, insurance costs, and maintenance fees.
Predictable growth with high dividends
Vici has consistently expanded its portfolio by acquiring new properties since its IPO in 2018. It halted its expansion over the past two years as interest rates rose, but it still maintained a perfect occupancy rate of 100%, rare for REITs, as its AFFO per share increased. It's also raised its dividend annually every year since its IPO, but it's still much lower than its AFFO per share -- which indicates it has plenty of room for future dividend increases.
|
Metric |
2021 |
2022 |
2023 |
2024 |
|---|---|---|---|---|
|
Total properties |
28 |
49 |
93 |
93 |
|
Occupancy rate |
100% |
100% |
100% |
100% |
|
AFFO per share |
$1.82 |
$1.93 |
$2.15 |
$2.26 |
|
Dividends per share |
$1.38 |
$1.50 |
$1.61 |
$1.695 |
Data source: Vici Properties.
For 2025, Vici expects its AFFO to rise to $2.32-$2.35 per share. At $31, Vici's stock still looks like a bargain at 13 times the midpoint of that estimate. Its forward dividend rate of $1.73 per share translates to a generous forward yield of 5.5%. That low valuation and high dividend should limit its downside potential in this choppy market.
A great place to invest $500 or $50,000
Vici isn't a stock that will skyrocket over the next few years. But if you want a stock that will deliver consistent income through uncertain times, then it's one of the few REITs I would consider an evergreen investment.
