Maybe it’s that things have been going along so well for so long, but investors appear somewhat nervous as though we’re bound to get a recession sometime.
No doubt we will, though when, is the question.
Still, in this time of growing doubt there are opportunities that offer some downside protection.
In gaming, one place to look is the space occupied by the REITs. The three gaming REITs provide good dividends and they are defensive plays—their rents will come in even if the economy slips. (One caveat is that the economy recedes, not crashes.) And in an era of consolidation, the REITs can continue to grow their tenant bases, which means more rent to pay higher dividends and more profits to boost stock prices. In other words, REITs can combine safety, growth and total return.
Here are their dividend yields:
Gaming & Leisure Properties 6.9%
MGM Growth Properties 5.9%
VICI Properties 5.2&
Hitting The Comeback Trail?
Another place to look is at companies that have fallen on bad news and now appear to be at bottom. Two such candidates are William Hill and IGT.
Both have been hit hard by government decisions. William Hill has been slammed by the UK’s decision to lower the maximum wager on gaming machines in betting shops from £100 to £2. Given that betting shops are the company’s biggest component and that the machines provided 55 percent of betting shop revenues last year, the impact is significant.
Likewise, IGT faced a big tax increase and other regulatory restriction in Italy.
The bad news caused the stocks to sell off. William Hill is more than 60 percent below its 52-week high and IGT is off 55 percent.
William Hill has issued an update saying the betting cap impact has been about as expected, meanwhile, online revenue has grown 8 percent so far this year and US revenues rose 48 percent and will grow much more thanks to the emerging sports betting market.
Further, William Hill has committed to modernizing its betting shops and growing its online business to double profits by 2023. Obviously, the company will have to execute on that strategy and do so in a highly competitive environment.
IGT is a defensive play with around two-thirds of revenue from lotteries, effectively recurring revenues.
Both companies give investors some reason for comfort in their dividends. William Hill’s yield is 8.75 percent on its recent payout. IGT’s yield is 5.8 percent.
Unlocking Value
There are a lot of ways to try to unlock value.
One is consolidation through REIT purchases and lease backs that allow casinos to be sold at significantly higher prices than has been historically the case.
Another is to restructure a company, sell it, or sell off select assets. That is the route that activist investors want MGM Resorts to take in studying how to best get value from its real estate holdings. And it is the path Carl Icahn and others want Caesars to take as they push to sell the company.
Then there are spin offs of fast-growing enterprises within slow-growing parents.
William Hill took a variation off the theme as U.S. sports betting partner Eldorado Resorts has acquired 20 percent ownership of William Hill US, which will grow exponentially and much faster than its London-listed parent.
Scientific Games took the more conventional approach in spinning off its social gaming business into a separate publicly traded company, SciPlay, while retaining more than 80 percent ownership. That allows investors to buy into a growth company while parent Sci Games still gets to benefit from that growth, too.
Do not be surprised to see more such deals.
