VICI Properties currently pays a 5.5%-yielding dividend.
It backs that high-yielding payout with stable cash flow and a solid financial profile.
The REIT has plenty of room to continue expanding to support its growing dividend.
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Investing in real estate can be a terrific way to make passive income. Tenants pay rent, which should cover all property expenses with room to spare, providing the landlord with income.
One of the easiest ways to make passive income from real estate is to invest in a real estate investment trust (REIT). These companies own portfolios of income-generating real estate. They distribute a portion of that income to shareholders via dividend payments.
VICI Properties(NYSE: VICI) is a top REIT to buy for passive income this June. It currently pays a 5.5%-yielding dividend — more than four times the S&P 500‘s (SNPINDEX: ^GSPC) sub-1.5% yield — that it has been growing at an above-average rate. That combination of yield and growth enables investors to collect lots of income now and even more in the future.
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VICI Properties is one of the largest REITs focused on experiential real estate. It owns market-leading gaming, hospitality, wellness, entertainment, and leisure destinations, like the Venetian Resort Las Vegas and the Chelsea Piers sports and entertainment complex in New York City.
The REIT leases these properties to operating companies under very long-term triple net (NNN) leases (40-year average remaining lease term) that increasingly escalate rents at rates tied to inflation (42% this year, rising to 90% by 2035). Those leases, which require that tenants cover all property operating costs (including routine maintenance, real estate taxes, and building insurance), provide it with stable, steadily rising rental income.
The REIT pays out about 75% of its adjusted funds from operations (FFO) in dividends each year. That gives it a big cushion while enabling it to retain a meaningful amount of its cash flow to fund new investments. VICI Properties also has a solid investment-grade-rated balance sheet, providing it with additional financial flexibility.
Its net leverage ratio was 5.3 times at the end of the first quarter, right in the middle of its 5.0x-5.5x target range. The company's stable cash flow and solid financial profile put its high-yielding dividend on a very stable foundation.
VICI Properties' rising rental income and growing real estate portfolio have supported its ability to increase its dividend. The REIT has raised its payment in all seven years since its formation. It has grown its dividend at a 7.4% compound annual rate, which is much faster than the 2.3% average pace of other REITs focused on investing in NNN real estate.
VICI Properties already has a leading experiential real estate portfolio. The REIT owns 54 gaming properties, including 10 trophy assets on the Las Vegas Strip. The company also owns Chelsea Piers and 38 bowling entertainment centers leased to Lucky Strike.
Despite its already extensive portfolio, VICI Properties has plenty of room to continue growing. There is an estimated $400 billion in U.S. gaming properties not currently owned by REITs or operated by tribal gaming companies. These properties alone represent a massive growth opportunity for the roughly $50 billion REIT (by enterprise value).
Meanwhile, tribal casinos represent an additional investment opportunity. VICI Properties owns several casinos leased to tribal operators. It has also made two loan investments related to properties on tribal land, including its recent partnership with Red Rock Resorts to fund the development of the North Fork Mono Casino and Resort in California.
On top of that, there's a large and growing opportunity to invest in nongaming experiential properties. VICI Properties has been getting in on the ground floor of this opportunity by forming financial partnerships with experiential property operators. It has made loans to Great Wolf Lodge (indoor water parks), Canyon Ranch (wellness retreats), Cabot (destination golf), and others. Many of these loans give the REIT the option to acquire properties from the developer in sale-leaseback transactions.
VICI Properties is always on the lookout for new partners and experiential real estate investment opportunities. It formed a strategic relationship with Cain International and Eldridge Industries earlier this year to identify and pursue unique experiential real estate. The first investment is a $300 million mezzanine loan to support the development of One Beverly Hills, a landmark luxury mixed-use development featuring an all-suite Aman Hotel, high-end boutiques, world-class culinary destinations, and a botanical garden.
The REIT's ability to continue expanding its portfolio supports its capacity to grow its dividend.
VICI Properties pays an attractive, steadily rising dividend backed by a world-class experiential real estate portfolio. The REIT also has a rock-solid financial profile, enabling it to continue growing its portfolio and dividend. Its combination of a high-yield dividend and above-average growth profile makes it a top REIT to buy for income this June.
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Matt DiLallo has positions in Vici Properties. The Motley Fool recommends Red Rock Resorts and Vici Properties. The Motley Fool has a disclosure policy.
1 Top REIT to Buy Hand Over Fist in June for Passive Income was originally published by The Motley Fool
