Vail Resorts (MTN -1.97%) recently reported its fiscal fourth-quarter results (for the period ended July 31) and provided an initial outlook for fiscal 2026, giving investors several important updates. The company, known for its Epic Pass and a resort portfolio that includes Vail Mountain, Breckenridge, Park City, and Whistler Blackcomb, also maintained its quarterly dividend at $2.22 per share. At current prices, that equates to a yield of about 6%, which stands out compared to typical payouts and even short-term Treasury yields.
Should investors jump in and buy the stock to secure this high dividend yield? Or is chasing yield a mistake in this case? Probably the ladder.
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Underwhelming results
Vail's fiscal 2025 results were mixed. Resort reported EBITDA rose 2% to about $844 million, aided by strong cost control, while full-year net income increased to roughly $280 million (up from $231 million in fiscal 2024).
Management was candid about the puts and takes. The adjusted bottom-line growth came "despite total skier visits declining 3% across our North American destination mountain resorts and regional ski areas versus the prior year," Chief Executive Officer Rob Katz said in Vail's second-quarter earnings release.
Further, season-to-date pass product sales for the upcoming North American ski season show units down about 3% but dollars up about 1% through Sept. 19, reflecting price increases rather than volume strength.
The dividend certainly stands out. But it is important to consider it in the context of earnings and cash flow. The annualized payout of $8.88 per share exceeds fiscal-year earnings per share of $7.53. This dividend level, therefore, can only be sustained if cash generation remains strong and leverage is kept in check.
Net debt currently stands at approximately 3.2 times EBITDA, which is manageable but still significant.
Worth noting, the company balanced capital returns between dividends and approximately $270 million in buybacks during fiscal 2025.
A weak outlook is the dealbreaker
The outlook management provided in its fiscal fourth-quarter update certainly wasn't worth getting excited about. For fiscal 2026, management is guiding for net income between $201 million and $276 million, and its resort reported EBITDA to be in the range of $842 million to $898 million. This outlook points to flat or only modest EBITDA growth, with earnings likely to decline at the midpoint compared to fiscal 2025.
In this context, the nearly 6% yield appears less like a bargain and more like compensation for slower growth and increased uncertainty.
Of course, Rob Katz's recent return as CEO could be the catalyst the business needs, given his previous success when he was at the helm. Still, any turnaround efforts will take time to materialize. Under Katz's leadership, the company has outlined several initiatives to boost demand, including updated marketing, friend-ticket offers, and resort-specific pricing. Growth initiatives like these could help restore pass unit growth. But the company has indicated that the full impact of these changes may not be seen until fiscal 2027.
For now, season-pass units are down, the business remains sensitive to weather, and Vail continues to invest heavily in capital projects to enhance the guest experience.
Stepping back, it is understandable that income-focused investors would be attracted to a 6% yield from a well-established operator with valuable assets, recurring pass revenue, and opportunities for further upgrades. However, a high yield by itself does not necessarily mean the shares are undervalued. With earnings likely to be under pressure this year, a high payout ratio, and leverage that limits flexibility compared to previous cycles, the margin for error is narrow if visitation or pass demand falls short. The CEO transition and ongoing cost discipline are positives, but the current numbers suggest a cautious approach is warranted.
Investors, therefore, should resist the urge to chase Vail's yield at current prices. Despite the mouth-watering yield, shares look more like a hold than a buy.
