Here’s a question that investors like to ask: What are you going to do with all of that cash?
That is an appropriate question for the two companies that have kicked off third-quarter earnings season for gamers: Las Vegas Sands (LVS) and Monarch Casino.
The companies are very different, both from each other and from other publicly traded casino companies.
Las Vegas Sands is a major casino operator without a Las Vegas casino, regardless of its name. It currently operates only in Macau and Singapore.
Monarch has just two casinos in the relatively small markets of Reno, Nevada and Black Hawk, Colorado, and no discernable growth plan other than continuing to mature the recently expanded and upscaled Monarch Black Hawk.
What the companies have in common is cash. LVS is expected to generate more than $5 billion a year in EBITDA and, if its growth plans in the Far East pan out, will generate a lot more.
Late founder and CEO Sheldon Adelson was famous for his rallying cry of “Yay dividends!” and the company has restored paying dividends as Macau has recovered.
The 20 cents a share quarterly payout annualizes to a yield around 1.7 percent. Its annual cost is over $600 million based on around 765 million shares outstanding.
That leaves a lot of money left for other purposes, and the company has made it clear that return of capital to shareholders will flip emphasis to buying back shares, which starts with a share repurchase authorization expanded to $2 billion through 2025.
That still leaves a lot of money, which can finance the growth projects in Singapore and Macau that CEO Rob Goldstein and his management team are clearly excited about, in addition to a possible $5 billion-plus Long Island project if LVS wins the competition for a New York City-area casino.
As CFO Pat Dumont said on the company’s third-quarter investor call: “We’re very focused on growth…We can grow through capital allocation or high-growth projects. We’re going to do it.”
Return of capital has usually tilted 80/20 towards dividends. They will shift more toward share repurchases, as reducing the share count can compound earnings per share growth, Dumont said.
That appears to be the right move for a company that may have expensive growth projects ahead and can then easily shift capital allocation again towards using more of its cash to finance growth if needed. In other words, the new mantra: “Yay share repurchases.”
Much smaller Monarch has a different issue. It has no growth projects, and with a very conservative leadership composed of members of the controlling Farahi family, it is difficult to see Monarch snapping up a bargain somewhere that it can transform, as it did with what is now Monarch Black Hawk.
In fact, given that CEO John Farahi and brother and co-chairman Bob are in their 70s, it is conceivable that a sale of the company would be more likely to monetize value.
Regardless, Monarch’s two current properties will generate about $175 million or so annually in EBITDA with limited capital expenditures needed after its next hotel tower refresh at Atlantis in Reno is completed.
In other words, the superbly run Monarch is a classic cash cow. Share repurchases would seem to be a low priority with no expansion project to finance. And with under 20 million shares outstanding, and much of that family owned, the public market doesn’t need fewer shares.
So, for Monarch, which last year initiated a $1.20 annual dividend that currently yields around 2 percent, the best answer would appear to be more dividends—special, recurring or both.
At the risk of being presumptuous, it seems logical that, barring some dramatic turn, Monarch’s mantra should be “Yay dividends.”
