Growth companies and shiny new things are what is sexy to many investors. Thus, the excitement over the proliferation of sports betting in the U.S.
However, the best way to make money isn’t necessarily from the newest toy in the box.
As Jeremy Siegel illustrated in his now classic book Stocks for the Long Run, the biggest long-term returns don’t come from growth companies, where excited investors often push stocks to sky-high valuations. They come from companies that grow profits and dividends steadily and surely.
These stocks can be called stalwarts. Not fast or exciting, but sturdy and reliable.
In gaming, the stalwarts include the three REITS—Gaming and Leisure Properties, MGM Growth Properties and VICI Properties.
As owners of real estate generating their revenues from rents paid by the companies operating casinos on their properties, they have steady and reliable income. And as their tenant casino operators grow their profits, rents rise with them, giving the REITs a growth component.
The REITs have caught on this year, partly because interest rates are falling, making their dividends more attractive to income-oriented investors. Partly, the REITs are benefitting from their own success as they now have track records to show investors. In large part, they are rising because they continue to grow through acquisitions in a target-rich industry.
That has combined for impressive total returns. Here are returns based on stock appreciation this year as of this writing and dividend yields based on current planned payouts:
Company Appreciation Dividend yield Total return
Gaming & Leisure 42.6% 6.5% 49.1%
VICI Properties 35.9 4.8 40.7
MGM Growth Properties 28.6 5.9 44.5
Not many growth stocks can match those numbers. And they are based on solid fundamentals, not speculation over some great new product that might be obsolete in six months or knocked out by a competitor’s neat new gizmo. Plus, investors get significant money in their pockets from the dividends.
Of course, it helps if your stalwart stock also has a kicker. The REITs do: the sudden belief that Las Vegas Strip real estate is in play at the very time it is rising in value, compounding potential returns.
The LV land boom has two catalysts: activist investors who have been pushing the largest Strip operator, MGM Resorts, to monetize its real estate, and the pending Eldorado purchase of Caesars, the second biggest owner of Strip properties.
More specifically, there has been reaction to Blackstone buying Bellagio from MGM for $4.25 billion and leasing it back for what will be 17.3 times rent and MGM selling Circus Circus to Treasure Island owner Phil Ruffin for more than 13 times trailing EBITDA.
Blackstone represents interest in gaming properties from big and smart real estate investors, which expands the potential capital coming into the industry. Ruffin made a point of seeing value in the 47 acres of undeveloped land at Circus Circus.
Eldorado CEO Tom Reeg reacted by noting that Caesars has more property to sell and that there are parties who want to be on or near the Strip. Penn National is said to be considering selling Tropicana real estate. Golden Entertainment has 17 undeveloped acres at the STRAT and is open to development that could include partners or a REIT transaction.
Finally, MGM CEO Jim Murren said that a sale of his biggest property, MGM Grand, is likely to be announced this year and that majority owned MGM Growth Properties is likely to be involved.
In other words, there’s a growth kicker to the gaming REIT stalwarts.
