For much of its relatively young history as a publicly investable industry, casino gaming has been a growth story.
The conversations have always been about building new properties, expansions into new jurisdictions and the returns those investments would generate.
Rare was the company that paid a dividend.
That has changed, and is changing at an accelerating rate.
Today, a number of casino companies pay dividends, and some at rates far higher than the historically safe cash investments, such as U.S. government bonds, and with less volatility than corporate bonds.
The trend has coincided with maturity, like with every industry, though gaming has a couple of its own peculiar motivations, namely Macau and the appearance of REITs.
In Macau, dividends are a way for American parent companies to get money from their Hong Kong-listed subsidiaries. Thus, MGM China pays a dividend that yields over 2 percent with most of that going to majority MGM Resorts, even though MGM Resorts doesn’t itself pay a dividend to its shareholders.
Dividends are inherent with REITs as they are obligated by law to pay out almost all of their profits to shareholders.
Gaming & Leisure Properties, the first gaming REIT, pays a dividend that yields around 6.7 percent. Brand new MGM Growth Properties has yet to pay a dividend, but when it does, it will become another source of cash for MGM Resorts, which owns more than 70 percent of the company.
A dividend yielding 6.7 percent is attractive in itself for investors who want income, but gaming companies also continue to grow, thus offering investors both income and growth. Combined, that can make for a healthy total return to shareholders.
Without getting bogged down in lots of numbers and scenarios, let’s just take a look at a few companies that pay dividends:
• Las Vegas Sands’ dividend currently yields more than 6 percent. With strong cash flow and assuming that the Parisian opening in Macau will be adequately successful, LVS should be able to continue paying and increasing its dividend.
CEO Sheldon Adelson, who now routinely cheers “Yea dividends” on the company’s quarterly investor conference calls, wants LVS to raise its dividend at least 10 percent a year.
Given the company’s history, cash flow and Adelson’s enthusiasm for dividends, that should be an achievable goal for the foreseeable future.
Meanwhile, subsidiary Sands China yields 3.2 percent, giving income investors a pure play on Macau.
• Wynn Resorts slashed its dividend last year, but still yields around 2 percent, which is better than the U.S. 10-year note.
Wynn also has two growth projects that promise to increase cash flow, and the stock price: Wynn Palace opening this year in Macau and Boston Harbor in 2019.
• Gaming & Leisure Properties. As a REIT, GLPI has the steady income from the rent paid by its casino operators. Historically, that was Penn National, from which GLPI was spun off.
But GLPI is also a growth story as it demonstrated in its purchase of Pinnacle’s real estate and pending purchase of Meadows racino in Pennsylvania.
• MGM Growth Properties is spanking new, but the company is already adding to its property portfolio with the pending purchase of the Borgata in Atlantic City, now an MGM Resorts and Boyd Gaming joint venture.