3 Reasons Vici Properties Is a Must-Buy for Long-Term Investors

If you're a long-term investor, the short-term rush brought on by gambling probably doesn't appeal to you all that much. But that doesn't mean other people don't like to gamble. In fact, there is a huge industry that focuses largely on providing access for gamblers.

One of the most notable gambling access points can be found in Las Vegas. That also happens to be where you'll find nearly half of Vici Properties' (NYSE: VICI) casino properties, some of which are iconic for those with any knowledge of gambling. Vici Properties is a real estate investment trust (REIT) that benefits from the popularity of gambling. And it has been pretty successful for itself and its investors.

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Here are three reasons why long-term investors will want to take a close look at buying Vici Properties.

1. Gaming is cyclical, which makes location vital for its success

The most important thing to understand about Vici is that it is not a casino operator. It is a landlord that specializes in owning casino properties. While the casino business waxes and wanes along with the broader economy (making the business cyclical by nature), the buildings in which casinos exist aren't at all cyclical. The gaming industry is highly regulated and it is actually quite difficult to open, let alone operate, a casino.

When a successful casino is operating, the property itself becomes valuable and remains so even if the casino business isn't. Since real estate investment trust (REIT) Vici owns the property, it owns what might be the most valuable asset of that casino. Indeed, it isn't uncommon for a casino in Las Vegas to shut down only to see a brand new casino rise from the ashes in the same location.

Image source: Getty Images.

A great example of the importance that casino properties play in the puzzle comes from the coronavirus pandemic. During that difficult and uncertain period, casinos were shut down for a spell. And even after they reopened it took a while for customers to get comfortable returning to the card tables and slot machines. But Vici's tenants didn't stop paying their rent. The fact that the REIT increased its dividend in 2020 despite the pandemic headwind is evidence.

No casino operator wants to lose access to its highly productive properties because it failed to pay the rent, even during weak patches. That, in turn, makes Vici's business a more dependable way to invest in the sector than owning a casino operator.

2. Vici Properties has a big dividend yield

Stocks in the S&P 500 index average a relatively tiny dividend yield of 1.2% today. The average REIT's dividend yield is 3.8%. Vici Properties' yield is 5.5%. So income-focused investors will likely find Vici an attractive income stock.

Then there's the not-so-subtle fact that the dividend was increased even during the pandemic, as already noted. The longer-term picture is even better, given that Vici has increased its dividend every year since it started paying a dividend in 2018. The company clearly places a high value on returning cash to investors.

VICI data by YCharts

Meanwhile, the adjusted funds from operations (FFO) payout ratio in the fourth quarter of 2024 was a solid 75%. That might seem elevated to more conservative investors, but Vici uses a net lease approach, so its tenants are responsible for most property-level operating expenses. That increases the cash available to pass through to shareholders.

It is also worth noting that Vici Properties' balance sheet just received an upgrade from Moody's. It went from being below investment grade to investment grade. This is not only a huge vote of confidence in the financial strength of the business, but it will also help Vici reduce the interest costs associated with its debt.

3. Years of income growth ahead

So Vici owns the most attractive assets in a business that is cyclical, but that also attracts a highly loyal clientele. The REIT has proven to be financially strong and resilient, given the dividend increases with which it has rewarded investors. There's one more factor to like here and that's growth.

To be fair, there's only so much growth through acquisition that is available to Vici. It is already one of the largest owners of casino assets. Modest bolt-on deals are probably the best that can be expected. That said, management is working to diversify the portfolio outside of gambling. The big push is to provide loans to other companies that may, if things go well, eventually lead to property acquisitions. This is a long-term play, however, since many of the loans are for construction projects that will require many years to come to fruition. But Vici has plenty of time to let this ground-up approach play out.

One of the most interesting features about its properties is that the average lease is 40 years long. And 90% of its leases have automatic rent bumps tied to inflation. That's built-in (slow and steady) growth for the REIT that should translate into more dividend increases in the years ahead. Any acquisitions, of casinos or other assets, will only add to the growth upside.

Vici is going to be an acquired taste

There are some very good reasons for high-yield investors to like Vici Properties. Indeed, it looks like it will provide long-term investors with a growing dividend stream for years to come. However, some investors may find its heavy focus on the casino sector to be a little concerning. That's fair and it might dissuade more conservative types from buying it. That fat dividend yield will probably be adequate compensation for those with just a little more risk tolerance, making this a potential must-buy REIT.

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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Moody's. The Motley Fool recommends Vici Properties. The Motley Fool has a disclosure policy.