Prediction: This 5.4%-Yielding Dividend Stock Will Produce Market-Beating Returns for Patient Investors

Vici Properties (NYSE: VICI) is a real estate investment trust, or REIT, specializing in gaming real estate. It owns 54 gaming properties, including some of the most iconic properties on the Las Vegas Strip, such as Caesars Palace, MGM Grand, and The Venetian. It owns an excellent portfolio of regional gaming assets, such as the Borgata in Atlantic City and MGM National Harbor in Washington, D.C., and a smaller portfolio of non-gaming properties.

In all, Vici's portfolio contains more than 60,000 hotel rooms; 4.2 million square feet of gaming space; 6.7 million square feet of meeting space; over 1,000 food, beverage, and retail outlets; and more than 50 entertainment venues.

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Although the relatively high-interest environment hasn't exactly been great for REIT growth, Vici Properties continues to do an excellent job of executing its strategy. Here's why this 5.4%-yielding dividend stock could be an excellent long-term investment to add to your portfolio right now.

A great business with room to expand

Vici is the clear leader in gaming real estate, having spun off from Caesars Entertainment (NASDAQ: CZR) in 2018. Although the casino business can be somewhat cyclical, you might be surprised at how solid Vici's business is.

For one thing, Vici's lease quality is fantastic. The average lease in Vici's portfolio has 41 years left on it, and 90% of its leases are protected long term from inflation (meaning that rent growth is tied to Consumer Price Index [CPI] growth).

While Vici is primarily a casino REIT today, it sees a massive opportunity to grow in other types of experiential real estate. It made its first major non-gaming acquisition in 2023 (a portfolio of Bowlero bowling centers) and could potentially pursue non-gaming hotels and resorts, shopping centers, sports arenas, entertainment venues, and much more.

There's also room to grow in gaming. Vici has the right of first refusal to acquire several other Las Vegas Strip properties and several regional assets should Caesars decide to sell.

The company has already established an excellent record of adding value through acquisitions. In its relatively short history, Vici has already acquired its largest rival (MGM Growth Properties), The Venetian, and several other assets and increased per-share funds from operations (FFO -- the real estate equivalent of earnings) as a result.

Because of its excellent capital allocation, Vici has been able to raise its dividend every year since its initial public offering (IPO), and there's no reason to believe the streak is in jeopardy anytime soon.

Still growing in a tough environment

Even in a difficult environment, Vici has found ways to continue to grow. To be sure, higher interest rates have made it less attractive to raise capital to buy more properties, so this type of activity has been notably slow recently. However, Vici has been using elevated interest rates to its advantage, making several financing investments (essentially acting as the lender).

Think of it this way: Vici's size and balance sheet give it access to relatively cheap capital. It just issued debt at a 4.75% interest rate, for example. If the company can lend money to partners to finance the construction of new properties at higher rates, it can profit from the spread.

For example, in 2024, Vici loaned money to finance the construction of a new Margaritaville resort and several properties for Great Wolf Lodge. The company also agreed to finance renovations at The Venetian at a 7.25% yield (structured as an incremental rent increase).

Not only is this a creative way to grow profits during a difficult growth environment, but most of Vici's deals also give the company the right to eventually acquire the property being financed, which creates a built-in growth pipeline for when costs of capital become more attractive.

The bottom line

Vici Properties has a portfolio of top-quality assets, an excellent balance sheet, and a management team that has already established a track record of smart capital allocation. Not only could Vici have a ton of room to grow from here, but it could also be a big beneficiary of falling interest rates. And in the meantime, you'll get a 5.4% dividend yield that is well covered by the company's profits.

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Matt Frankel has positions in Vici Properties. The Motley Fool recommends Vici Properties. The Motley Fool has a disclosure policy.