MGP Stock: Collect a Steady Growing Dividend Yield of 5.2%
August 22, 2017
Consider Owning MGP Stock for Its Dividend Growth
A more diversified business is what income investors should always be looking for. These businesses ensure that there are multiple streams of income and that the dividend is being covered by the revenue that is being generated.
One company that should be highly considered due to its diversification and dividend growth is MGM Growth Properties LLC (NYSE:MGP) stock. MGM owns and manages 11 high-quality entertainment and leisure resorts. Together, they total more than 27,000 hotel rooms, over 200 restaurants, more than 100 retail stores, and over 1.0-million square feet of casinos and gaming. A little more than half of the properties are located in Las Vegas, including The Mandalay Bay, The Mirage and New York-New York, and The Park.
Below is an in-depth analysis on why there is a bullish outlook on MGP stock.
Attractive Valuation
When looking to invest into a company, the valuation is very important. You need to look at both the valuation of the potential investment and the average valuation of that industry, since they would all experience the same economic impacts, earn similar margins, and have similar business models.
The best data for determining valuation is the price-to-earnings (P/E) ratio. The current P/E ratio for MGP stock is 39.1 times, while the industry average is 58.5 times. In other words, MPG stock is trading at just 66% the valuation of the industry average.
However, this cheap valuation does not make sense in the current market, as the operating and profit margins are much higher than the industry average. For instance, MGM’s operating margin is 50.3%, compared to the overall industry’s 18.7%. Therefore, once operating expenses are accounted for (cost of goods sold, labor cost, general admin costs, etc.), there is 2.7 times more remaining within the company.
Dividend Income
MGM has been trading on the public markets since April 2016. Its quarterly dividend began in July 2016 and was for $0.2632 per share. Since then, there has been two dividend hikes, making today’s payout $0.395 per share. That’s dividend growth of 50% over a very short period.
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With such large margins, it is quite possible for more growth in the dividend. Also keep in mind that before going public, MGM was losing money and only recently turned a corner. In 2015, the company lost a total of $261.9 million, while in 2016, MGM earned positive net income of $29.4 million. (Source: “MGM Growth Properties LLC,” MarketWatch, last accessed August 18, 2017.)
The Bottom Line on MGP Stock
Owning a company with great assets is the top criteria for a stock with a high dividend. And since more than half of MGM’s properties are located in the famous Las Vegas strip, its assets are irreplaceable.
MGP stock provides access to a high-barrier-to-entry business with upside participation in the tourist industry in one of the most visited vacation spots in the world.
Shares of MGP stock are currently offering a dividend yield of 5.2%.
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