Analyst Sees 54% Upside For This High-Yield Real Estate Dividend Stock

Real estate stocks have been the worst performers this year amid higher interest rates and lackluster activity in the housing sector. The S&P 500 Real Estate sector is down about 5.5% this year, compared with the broader market’s 15% gain in the same period. However, analysts believe an expected decline in interest rates and easing inflation could result in a rebound in real estate stocks.

Earlier this year, Morgan Stanley predicted that market conditions in the back half of 2024 would become "conducive" for investors to return to the real estate market after an expected stabilization in interest rates. In this context, now could be the right time for long-term investors to pile into real estate stocks on the dip. Let’s look at one such stock that Wall Street is talking about.

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VICI Properties Inc. VICI is a real estate investment trust that focuses on casinos, entertainment and hospitality facilities. It owns some of the world’s most famous entertainment properties, including Caesars Palace Las Vegas, MGM Grand and the Venetian Resort Las Vegas. While the stock is down about 14% this year, Wall Street is bullish on the company. 

Jefferies Sees 54% Upside for VICI Properties

Recently, Jefferies analysts led by David Katz said in a report that they have updated their model for VICI Properties following rent increases at Caesars Palace on the Las Vegas Strip and in view of the incremental rent incomes at The Venetian. Jefferies now expects revenue of $3.98 billion for the company in fiscal 2025. 

Jefferies analysts maintained their $43 price target on VICI stock, which represents a 54% upside from its current levels as of June 26.

An Analysis of VICI's Dividend and Financials 

VICI Properties has an attractive dividend yield of about 5.9%. The company’s dividend has grown at a CAGR of 7.9% since its IPO in 2018. Last month, it posted solid first quarter results. Revenue jumped 8.4% year-over-year to $951.5 million, surpassing estimates by $14.91 million. FFO per share in the quarter totaled $0.57, up from $0.53 in the prior-year quarter.

Despite inflationary pressures, the company’s gaming business in Las Vegas remains strong and accounts for about 98% of its overall rental income. Amid these strong numbers, the company said it would provide $700 million for the renovation of The Venetian Resort Las Vegas. Analysts believe this long-term investment would bear fruit as the company and its partner in The Venetian, Apollo, would increase rental income.

Trending: If there was a new fund backed by Jeff Bezos offering a 7-9% target yield with monthly dividends would you invest in it?

Valuation

VICI Properties' AFFO per share multiple of 10.43 is much lower than the industry average of 33.50. Analysts believe possible rate cuts in the future could redouble business activity on the Las Vegas Strip, bolstering VICI’s profits.

Risks

However, a major chunk of VICI’s business comes from the gaming industry, indicating a lack of diversification. Entertainment REITs are negatively exposed to high interest rates, and with the Fed open to a "higher for longer" rate scenario, VICI stock can test investors’ patience. Additionally, any slowdown in tourism in Las Vegas could dampen VICI’s growth plans.

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