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VICI, Vegas, & Vanished Emperors
Published 2 months ago • 5 min read
Presented By: The Early Bird from MarketBeat
Official Affiliate Partner: The Early Bird from MarketBeat
Hello again, investor!
This was a long one, so Godspeed to you, and good luck making it through!
I was reading Buckle Up Buttercup: My Warning To Dividend Investors by Leo Nelissen on SeekingAlpha.com, and he had a few interesting takeaways from the recent "hawkish" fed rate cut. (BTW, I gifted you that article. Click the link, and you'll be whisked away to the other side of the article's paywall. Merry Christmas, ya filthy animal!)
As I understand it, the Federal Reserve controls the rate at which banks lend to each other, and this rate ripples down through the economy.
Think of it like a car. When the Fed wants the economy to slow down, it steps on the brakes by raising interest rates, which increases the cost of borrowing and doing business.
But, when they want to speed up the economy, they step on the accelerator by lowering interest rates, which makes the cost of business and borrowing money cheaper.
This week, the Fed announced a 0.25% rate cut, lowering the range to 4.25% to 4.50%. However, they expect only two rate cuts instead of three in 2025.
The stock market repriced this new information, and we saw a big selloff on Wednesday, digestion on Thursday, and a big up day on Friday.
The Vanguard Total Stock Market Index (VTI), representing every publicly traded U.S. company, ended the week about 3.2% below its all-time high of $302.92. So, there's a long way to go until an official correction of 10% is achieved.
As you probably know, I like to focus on individual companies rather than macroeconomics, but they are intertwined.
As Leo points out in his article, dividend investors should focus on companies with:
•Reasonably valued (many stocks are still expensive at 22.2x forward earnings)
•Strong pricing power (to pass on inflation to customers)
The sectors/stocks that Leo recommends are:
•Industrial cyclical like GE Aerospace (GE) (expecting 20%+ EPS growth)
•Railroads like Union Pacific (UNP) (benefiting from economic reshoring)
•Select REITs like Rexford Industrial (REXR), Realty Income (O), Prologis (PLD), and VICI Properties (VICI) (which have been beaten down but have solid fundamentals)
I took advantage of the VICI Properties selloff this week, which fell 7.5%, and closed the week sporting a 6.01% dividend yield.
VICI Stock Price
VICI Properties is the biggest casino landlord in Las Vegas. They own about half the Strip, including famous spots like Caesars Palace and The Venetian. However, they don't run the casinos; they just collect rent from operators like The Venetian and Caesars.
While they've been doing well and have solid long-term leases averaging 41 years, there's some risk. 74% of annualized cash rent comes from two tenants - Caesars Entertainment Inc. (CZR) and MGM Resorts Intl. (MGM).
However, both are publicly traded S&P500 companies. Should any major red flags pop up, we should get early wind of it and reassess our VICI Properties investment thesis.
Las Vegas is a one-of-a-kind worldwide destination (seriously, can you think of a comparable city?). Because there is limited space on the Vegas strip, VICI's properties have a high barrier to entry.
General goods and services stores are a dime a dozen, but property on the Las Vegas strip is near impossible to butt your way into. Because of this, I get the "warm and fuzzies" with VICI. If Caesars and MGM cannot pay their rent, we may have an Army of the Dead scenario and much bigger problems to deal with!
I see that VICI Properties has low debt, a low AFFO payout ratio, and a 5Y dividend growth CAGR of 10%. According to simplysafedividends.com, a share price of less than $30 is considered undervalued.
Simply Safe Dividends VICI Valuation
This week, we liquidated our remaining $1000 of SWVXX and used the proceeds to buy our final 26 shares of VICI Properties at an average cost of $28.90, achieving our milestone of 300 shares.
The only reason it's a milestone is that 300 is a nice round number conjuring up Sparta images.
Speaking of Sparta, the Battle of Thermopylae in 480 BC, and Julius Caesar (who wouldn't rule Rome until the first century BC) gives me a thought I'd like to crowbar in that begins with a question.
Without looking it up, how many Roman emperors can you name?
I got four: Caligula, Nero, Marcus Aurelius, and Constantine.
It turns out Constantine is a lousy remembrance because there were 14 rulers with the name Constantine.
At the time of their reign, about 82 Roman Emperors were the most powerful people in the world, and I can only name three specifically. Three.
That's less than 4%!
If you're game and still with me, check out this list. I guarantee (unless you're a historian) that there are names you've never heard of until now.
Think about that. Balbinus was the most powerful person on earth at one point, and I have no idea who he was, and I assume the same for you. 99% of the world has forgotten who Roman Emperor Balbinus was.
What chance do we have if the world has forgotten a Roman Emperor?
Exactly.
But you are not forgotten today. So do what you can to enjoy your friends, family, co-workers, or pets, and make everyone's time here a little more enjoyable.
What a great way to end this, right? Inform you that the world will forget that you ever existed! Yay!
But seriously, do something in your community or the life of someone you know to put a smile on their face or leave this place just a bit better than you found it.
Like how the Fed's rates ripple through the economy, your good gestures will ripple through present and future generations.
And that is something the world will be better for.
😁THANK YOU to everyone who responded to the last newsletter!!
If you have a long ride or task ahead of you and love Chocolate, this is a can't-miss episode. It's all about Mars from the beginning until now, and it's almost 4 hours long!
🎦If you missed it, why I sold our dividend kings Johnson and Johnson and PepsiCo!
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