My Top Dividend Stock To Buy In July
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As a Las Vegas local, I'm fortunate to live just 20 minutes from the Strip. Though I don't visit all too often—maybe once or twice a month—one of my favorite things to do is just walk up and down the Strip, and I'm unlike many other locals in the sense that the Strip's novelty hasn't worn off for me.
It's amazing to be so close to legendary resorts like Caesars Palace, the Venetian, and the Mirage (which is closing next month to become the Hard Rock). Interestingly, these iconic spots, along with other major properties like MGM Grand, Mandalay Bay, New York New York, Excalibur, and Luxor, are all owned by one company: VICI Properties (VICI), which is my top dividend stock pick for July (you can learn about some of my other top picks here).
VICI Properties was established in 2017 as a spin-off from Caesars Entertainment during its bankruptcy reorganization. Now, it's one of the world's largest experiential real estate companies, with a portfolio of unique assets in top gaming, hospitality, entertainment, and leisure destinations, including Las Vegas.
Source: VICI Investor Presentation
So far, 2024 hasn't been kind to VICI's share price. Over the past month, shares have dropped by 2.3%, and they're down 12.3% year-to-date.
While these numbers might seem underwhelming at first glance, they actually present a great buying opportunity for investors who are on the hunt for cash-flowing stocks at discounted prices. Fortunately, VICI’s decline is driven more by macroeconomic factors rather than any fundamental weaknesses in the company itself (at least, from what I can see).
The primary reason behind VICI's recent downturn is the stubbornly high interest rate environment we’re in. REITs, including VICI, are particularly sensitive to interest rate fluctuations.
This is because higher interest rates increase borrowing costs and can sour investor sentiment toward REITs and other dividend paying stocks. Unfortunately, the Federal Reserve's ongoing fight to curb inflation continues to delay potential rate cuts, which puts additional pressure on REITs.
Despite these current headwinds, VICI Properties still has several competitive advantages that I believe position it for long-term success.
As mentioned, VICI owns some of the most coveted real estate here in Las Vegas, an iconic city that is unlike anywhere else in the world. Because Vegas is such a prime destination for international travel, and because the Strip really doesn’t extend beyond Las Vegas Boulevard, there’s a high barrier to entry for competitors, which helps ensure that VICI's assets remain in high demand.
Source: VICI Investor Presentation
Additionally, VICI benefits from extremely long triple net lease terms, averaging 42 years across their entire portfolio. These leases transfer most property-related expenses to the tenants, including maintenance, insurance, and property taxes, providing greater stability and predictability for VICI's revenue streams.
Still, no company is without its risks, and it's important to consider those belonging to VICI.
First and foremost, a significant portion of VICI's annualized cash rent—74%—comes from just two companies: Caesars Entertainment and MGM Resorts. This concentration risk means that any financial difficulties faced by these tenants could directly impact VICI's revenue in a meaningful way.
Additionally, many of VICI's tenants operate in discretionary sectors such as travel, bowling, and water parks. During economic downturns, consumers might cut back on spending in these areas, potentially affecting tenants' ability to pay rent.
Having said that, it’s important to note that VICI demonstrated some serious resilience during the 2020 pandemic, and successfully collected 100% of its rent despite widespread economic disruption. I actually visited Las Vegas in July 2020 before I moved here, and I remember it being a ghost town.
Source: VICI Investor Presentation
Overall, I think there's a lot to like about VICI Properties. The company's unique real estate holdings in Las Vegas and beyond, combined with its long-term, tenant-friendly lease agreements, provide a solid foundation for success.
While our current interest rate environment continues to pose a challenge, I still think VICI is worth considering for dividend investors. And now may actually be a great time to really consider it because of the discounted share price.
With that said, I want to hear from you: Which discounted stocks are you eyeing for the upcoming month? Reply to this email, or write to me here and let me know.
And a big thank you to all of the readers who responded to last week's newsletter! You can read some of the responses down below in the "Hot Takes" section. 👇
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IN MY PORTFOLIO 📈
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ICYMI 🎥
3 Deeply DISCOUNTED Dividend Stocks To Buy In July 2024
In this video, we’re talking about 3 stocks that look like particularly great pickups for your portfolio as we fly into July.
CAREFULLY CURATED 🔍
📺 Dividend Millionaire By 35 - Ari Gutman's "Masters of the Market" video series is always a hit, but I particularly enjoyed the latest episode featuring Bert "The Hurt" from the Dividend Diplomats, and I think you will too.
🎧 The Future of Dividends -The next book I want to read is The Ownership Dividend by Daniel Peris, who was recently featured in this episode of the Dividend Mailbox podcast. Daniel forecasts a bright future for dividend growth investing (which is good to hear), and he lays out all the reasons why in this episode.
📚 Deals From Hell - Right now I'm reading a book called Deals From Hell by Robert Bruner. The book dives deep into M&A, examining 20 case studies—half of them good and the other half not so much—to help readers and investors learn what makes for a good M&A deal. If this sounds interesting to you at all, here's a good summary that captures the main points nicely.
SINCE YOU ASKED 💬
"I am quite new to dividend investing. And my question is, how do you know what stocks to buy?"
- @boaz6492 | YouTube
I actually put out a full video on this, which you can watch here. But in a nutshell, there are three things I look for in a potential investment.
First, you need to determine if you understand the business. Once you've identified a stock that seems interesting, ask yourself honestly if you understand the company and how it makes money.
If you do, great! You've just checked off a very important box. This business falls within what Warren Buffett calls your Circle of Competence.
Next, you'll want to assess whether the business is growing. You can do this by examining the company's financial statements, and by looking at its revenue, earnings, and free cash flow.
Ideally, you want to see all of these trending positively over time. Strong earnings growth typically leads to an increase in the share price over time, and a company also won’t be able to sustainably grow its dividend if the earnings aren’t growing.
On that note, another thing you'll want to analyze is whether or not the dividend is sustainable. A quick way to gauge this is by looking at the Payout Ratio, which is the percentage of the company's earnings it pays out as dividends.
The lower the Payout Ratio, the less financially stressful the dividend is for the company. If a company consistently pays out more in dividends than it earns, then it won't be able to maintain the dividend in the long run.
Have a question? Ask me here to see it featured in an upcoming newsletter.
HOT TAKES 🔥
Last week, I asked readers how they tune out the "voting machine" to focus on the "weighing machine." Here are some of the responses:
Pat said: I watch the financials and the dividend. If they look good, the daily and weekly movements of a stock price don't bother me. I see downturns as buying opportunities. However, when my portfolio takes a big hit, it always makes me nervous.
Matt said: My strategy for tuning out the voting machine is to stick to my dollar cost averaging strategy, actively look for opportunities or deals, and set SMART goals for where I want to be with a particular stock each week.
Kent said: As a dividend investor, I'm focused on the growth of the dividend. If the company has strong fundamentals, the share price fluctuations don't matter. When a stock has good fundamentals, I see it as a chance to buy more.
Jeff said: I find that looking at long-term charts is a quick and easy way to restore confidence in the performance of strong companies and the market as a whole.
Clay said: Having a portfolio split between index funds, investment grade/government bonds, and individual stocks has helped me tune out the noise. I quit watching CNBC unless there's an FOMC announcement, or to understand extreme swings in the market. That, along with buying mature companies with sound fundamentals helps me sleep better at night. Like Warren Buffett has said, if I go in with the mindset that the market could close for 5 years when I make a purchase, it keeps me from speculating.
LAST WORD 👋
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