Look for Gaming and Leisure Properties Stock to Hike its Dividend in 2021
The shuttering of U.S. businesses due to the COVID-19 pandemic in the first half of 2020 has wreaked havoc on the vast majority of the economy. One area that got particularly hammered was the travel and leisure industry. Hotels, resorts, and casinos have mostly been empty.
One company that has seen its share price crumble is Gaming and Leisure Properties Inc (NASDAQ:GLPI). But with the U.S. economy opening up again and people returning to casinos, GLPI stock is poised to return to its glory days.
In fact, it has already turned the corner. But judging by the way Wall Street reacted to the company’s record third-quarter 2020 results, investors are watching to make sure the good times are going to continue.
Fair enough, investors in Gaming and Leisure Properties stock have been on a roller coaster ride lately. But that wasn’t the norm. Between 2016 and 2019, GLPI stock advanced a respectable 110%. That strong momentum carried into 2020, with the stock rallying 18% in the opening weeks and hitting an all-time record high of $47.08 on February 21, 2020.
Then word started to spread about the coronavirus outbreak, and over the following weeks, the broader stock market crashed. Gaming and Leisure Properties stock was one of the hardest hit. Less than a month later, on March 19, GLPI stock had lost 75% of its value, bottoming at $12.22.
As you can see in the chart below, Gaming and Leisure Properties stock has rebounded, but the trip has been a little circuitous. That said, GLPI stock has erased almost all of its losses associated with the coronavirus-induced sell-off.
And the company’s outlook remains excellent. I think that, over the coming months, investors will regret not putting Gaming and Leisure Properties stock on their radar earlier. That’s especially true as we enter the warmer months, and as cooped-up Americans and COVID-19-weary tourists turn their sights back on U.S. attractions. Hotels will be busy again and casinos will be ringing.
Chart courtesy of StockCharts.com
About Gaming and Leisure Properties Inc
The house always wins, but sometimes it shares. Gaming and Leisure Properties is a self-administered, self-managed real estate investment trust (REIT) that buys, finances, and owns property that it leases to gaming operators in triple net lease arrangements. (Source: “About Gaming and Leisure Properties, Inc.” Gaming and Leisure Properties Inc, last accessed February 8, 2021.)
With a triple net lease, the tenant pays all of the expenses for the property, including utilities, taxes, building insurance, and maintenance. This is on top of the rent.
Gaming and Leisure Properties’ property portfolio currently consists of 44 gaming and related facilities in 16 U.S. states. Its tenants include Penn National Gaming, Inc (NASDAQ:PENN), Boyd Gaming Corporation (NYSE:BOYD), Casino Queen, and Eldorado Resorts, Inc. The company also owns and operates “Hollywood Casino Baton Rouge” and “Hollywood Casino Perryville.”
Gaming and Leisure Properties has grown its extensive portfolio through a number of strategic acquisitions.
In April 2016, the company essentially acquired all the real estate assets of Pinnacle Entertainment, Inc. for approximately $4.8 billion.
In October 2018, it completed its acquisition of the real estate assets of five casino properties from Tropicana Entertainment Inc. for $964.0 million. Gaming and Leisure Properties also provided a $246.0-million mortgage loan to Eldorado Resorts to finance its acquisition of the real estate assets of “Lumiere Place” in St. Louis, MO from Tropicana Entertainment.
Also in October 2018, the company completed its acquisition and lease modifications to accommodate Penn National Gaming in its acquisition of Pinnacle Entertainment. As part of this transaction, Gaming and Leisure Properties acquired the real estate assets of “Plainridge Park Casino” in Plainville, MA. Gaming and Leisure also provided a $57.7-million mortgage loan to Boyd Gaming to finance its acquisition of the real estate assets of “Belterra Park Gaming and Entertainment Center” in Cincinnati, OH.
Gaming and Leisure Properties to Acquire 2 More Gaming Properties
At a time when many businesses were hunkering down, trying to save money, Gaming and Leisure Properties was seizing on opportunities.
On October 27, 2020, the company announced that it had agreed to acquire the real property assets of “Dover Downs Hotel & Casino” in Delaware from Twin River Worldwide Holdings, Inc. (NYSE:TRWH) and to re-acquire the real property assets of “Tropicana Evansville” from Caesars Entertainment Inc (NASDAQ:CZR). (Source: “Gaming and Leisure Properties to Acquire Two Regional Gaming Properties for $484 Million and Simultaneously Enter into a New Master Lease Agreement With Twin River Worldwide Holdings,” Gaming and Leisure Properties Inc, October 27, 2020.)
Gaming and Leisure Properties will acquire Tropicana Evansville’s real property assets for about $340.0 million, and Twin River will acquire its operating assets for about $140.0 million.
Separately, Gaming and Leisure Properties will execute a sale-leaseback directly with Twin River for Dover Downs Hotel & Casino and will acquire the real property for $144.0 million.
The two properties have an aggregate real estate purchase price of about $484.0 million.
5 Years of Dividend Growth Interrupted by COVID-19
Before COVID-19 decimated the tourism industry, Gaming and Leisure Properties Inc had a track record of raising its dividends.
| Year | Cash Amount | Year-Over-Year Increase |
| 2020 | $2.50 | -8.7% |
| 2019 | $2.74 | 6.6% |
| 2018 | $2.57 | 2.8% |
| 2017 | $2.50 | 7.7% |
| 2016 | $2.32 | 6.5% |
| 2015 | $2.18 | N/A |
| 2014 | $14.32 (including special dividend) | N/A |
(Source: “Dividend History,” Gaming and Leisure Properties Inc, last accessed February 5, 2021.)
The company decreasing its dividend during the worst economic crisis since the Great Depression wasn’t a total surprise. And maintaining a dividend yield of 5.5% is pretty amazing—although the payout came with a caveat.
For example, for the fourth quarter of 2020, the company announced a dividend of $0.60 per share, which consisted of a combination of cash ($27.6 million) and shares (2.5 million). (Source: “Gaming and Leisure Properties, Inc. Announces Shareholder Election Results for Fourth Quarter Dividend,” Gaming and Leisure Properties Inc, December 23, 2020.)
Shareholders who wanted the dividends to be reinvested received the full amount in shares. Shareholders who wanted the payout received the amount in the form of approximately $0.14 per share in cash and $0.46 per share in common stock. Shareholders who didn’t tell Gaming and Leisure Properties what they wanted received the amount in the form of $0.12 per share in cash and $0.48 per share in common stock.
Not a perfect solution for those who like to cash in their dividends, but it’s certainly a good, inflation-busting compromise that preserves the company’s liquidity. And with the economy rebounding, chances are good that Gaming and Leisure Properties will resume hiking its annual dividend in 2021.
The company currently provides investors with a 5.5% dividend, which works out to a forward annual dividend rate of $2.40 per share and a dividend payout ratio of 80.3%.
Record Q3 Results
Gaming and Leisure Properties Inc is still able to provide investors with a frothy dividend because of its strong operations. Last October, the company announced that its revenue for the third quarter, which ended September 30, increased seven percent year-over-year to $307.6 million. (Source: “Gaming and Leisure Properties, Inc. Reports Record Third Quarter 2020 Results,” Gaming and Leisure Properties Inc, October 27, 2020.)
Its income from operations went up seven percent to $200.7 million, while its net income went up 40.5% to $217.1 million.
The company’s funds from operations (FFO)—a financial performance measure used by REITs that’s similar to cash flow per share—climbed 25% year-over-year to $182.2 million ($0.83 per share), from $145.6 million ($0.68 per share) in the same prior-year period. Its adjusted FFO was $0.89 per share in the third quarter of 2020, compared to $0.87 per share in the third quarter of 2019.
Peter Carlino, chairman and CEO, commented, “Our record third quarter financial results highlight our ability to dynamically manage our leading, diversified portfolio of regional gaming assets and support our tenants throughout the pandemic to ensure the ongoing predictability of our rental cash flows.” (Source: Ibid.)
Carlino also noted, “Year-to-date, we have collected over 99% of our contractual rents as our tenants have generated impressive financial results since re-opening and, in many cases, are generating higher cash flows from their properties leased from GLPI, thus increasing the longer-term visibility of our rental receipts.”
On top of that, the company’s third-quarter results benefited from the variable rent component of certain leases and strong post-reopening results at Hollywood Casino Baton Rouge and Hollywood Casino Perryville.
The Bottom Line on Gaming and Leisure Properties Inc
Gaming and Leisure Properties Inc is a high-yield REIT that investors should put back on their radar.
The U.S. economy is reopening, Gaming and Leisure Properties’ tenants are generating higher cash flows, the company reported record third-quarter results, and it announced a blockbuster acquisition. All of which should help boost the price of GLPI stock and help the company resume hiking its dividends.