Shares of VICI Properties (VICI 0.31%) are currently down about 6.5% from their 52-week high. That slump comes at a time when the stock market has been soaring and is near an all-time high.
That dip appears to be a buying opportunity for this exceptional real estate investment trust (REIT). With its dividend yield now up to 5.7% and significant growth potential, VICI Properties is a great real estate stock to buy and hold for a potentially lifelong stream of passive dividend income.
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An extremely durable income stock
VICI Properties invests in market-leading casino, hospitality, wellness, entertainment, and leisure destinations. It primarily invests in properties secured by triple-net leases (NNN) with very long terms (it has a 40-year average remaining lease term). This lease structure requires that tenants cover all property operating costs, including routine maintenance, real estate taxes, and building insurance.
Most of its leases contain clauses that escalate rents at a rate linked to inflation (42% this year, rising to 90% by 2035). As a result, VICI Properties produces very stable and steadily rising rental income (a 1.7% average same-store rent growth this year).
It pays out about 75% of its adjusted funds from operations (FFO) in dividends. That enables the REIT to retain a meaningful percentage of its steadily rising cash flow to reinvest in new income-generating experiential properties.
The company also has a strong investment-grade balance sheet backed by a low 5.2 times leverage ratio (toward the low end of its 5 to 5.5 target range). This provides added financial flexibility to make new income-generating investments.
This combination of cash flow stability and conservative financial metrics puts VICI Properties' high-yielding dividend on a very sustainable foundation.
Lots more growth ahead
The company has increased its dividend every year since its formation eight years ago. It has grown its payout at a 6.6% compound annual rate during that period. That beats REITs focused on owning properties secured by NNN leases, where the average annual dividend growth was 2.3% during that period.
That above-average dividend growth should continue. VICI Properties has the financial capacity and market opportunity to continue growing its income for years to come.
Four key factors should drive continued income growth:
- Rental increases: VICI Properties benefits as more leases link rent to inflation, providing consistent income growth.
- Real estate acquisitions: A core growth pillar for the REIT is acquiring gambling and experiential real estate via sale-leaseback transactions or by purchasing properties from other investors. For instance, in late 2023, it acquired Chelsea Piers, a premier sports and entertainment complex in New York City, through the conversion of a loan investment into real estate ownership in a $342.9 million sale-leaseback transaction.
- Partner property growth fund: VICI Properties will provide tenants with capital to fund projects at existing locations. For example, in mid-2024, it provided The Venetian Resort Las Vegas with up to $700 million for hotel room renovations, gambling floor optimization, and conference center enhancements. This investment will generate added rental income for the REIT.
- Experiential credit solutions: The REIT will provide financing to operators of experiential properties. This year, VICI Properties agreed to provide up to $510 million to fund the development of the North Fork Mono Casino and Resort in Madera, California. It also made a $450 million mezzanine loan investment to support the development of One Beverly Hills, a landmark luxury mixed-use development project. These credit investments generate interest income and often come with options to acquire properties in the future.
The company sees many opportunities to invest capital into new and existing gambling properties. And it's steadily expanding its portfolio into other categories by investing in destination golf, wellness, family entertainment, youth sports, and other properties. Its growing credit-solutions platform has provided the REIT with a built-in acquisition pipeline that should drive its expansion for years to come.
A terrific dividend stock
VICI Properties' existing portfolio should produce durable and steadily rising rental income for decades to come. And it has the financial resources and market opportunity to continue adding properties. These catalysts should enable the REIT to continue growing its high-yielding dividend, making it an excellent stock to buy and hold for a potential stream of passive income that could last a lifetime.
