Las Vegas Sands' (LVS 0.72%) stock and its major operations in Macau didn't have a great 2015. A crackdown on corruption, a weak Chinese economy, and a virtual shutdown of VIP gaming led to a 35% drop in gaming revenue so far this year and everyone has felt the impact.
Amid the decline, Las Vegas Sands paid a dividend all year and recently announced a 10.8% increase in next year's dividend to $2.88 per share. Will that be sustainable and is another increase coming in the near future?
Behind Las Vegas Sands' dividend
To analyze whether or not Las Vegas Sands' dividend is sustainable and could be increased in 2016 we need to look at the company's cash flow. The best proxy for cash flow from gaming companies is earnings before interest, taxes, depreciation, and amortization (EBITDA).
Las Vegas Sands only pays 51% of its EBITDA in the form of a dividend based on last quarter's payout at trailing 12 month results. But also notice the trends of both. EBITDA is falling while the dividend payout is rising, which is a bad trend for the dividend long-term.
|
Annual |
Change y/y | |
|---|---|---|
|
Dividend Cost |
$2.29 billion |
+10.8% |
|
EBITDA (ttm) |
$4.47 billion |
-15.6% |
|
U.S. EBITDA (ttm) |
$423.8 million |
-3.4% |
Source: Las Vegas Sands earnings releases.
I've also included the company's U.S. EBITDA because Las Vegas Sands only owns 70.2% of its Macau operations and earnings outside of the U.S. may be subject to repatriation taxes. So, the full EBITDA reported each quarter isn't a true gauge of the cash flow coming into the company's headquarters.
Image: Las Vegas Sands.
A dividend increase depends on Macau
Given the current trends in Macau, it's hard to see why Las Vegas Sands would want to increase its dividend during 2016 or even 2017 unless Macau turns around. The company will be opening the $2.7 billion Parisian resort in Macau late next year and in total six new resorts are opening in Macau between 2015 and 2017. That's in a down gaming market, so revenue and EBITDA could be down for all of Las Vegas Sands' Macau resorts again in 2016.
Assuming there's no surprise jump in Macau's gaming revenue in 2016 I think the announcement of another dividend increase next year is unlikely. The company would be better off saving cash or reducing debt given the current market conditions than increase payouts.
Las Vegas Sands is still a steady dividend in gaming
Even if Las Vegas Sands doesn't increase its dividend next year it's still a great dividend in gaming. The company is in the two most lucrative gaming markets in the world (Macau and Singapore) and is generating billions in cash flow despite a down market for gaming in Asia. The yield of 6.7%, based on next year's $2.88 dividend, is also well above the market average.
Gaming may not be the first place investors look for dividends, but casinos spit off a lot of cash and Las Vegas Sands has more big cash generating resorts than anyone in the business. That makes this a dividend stock to keep an eye on, even if the dividend doesn't grow in 2016.
