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Should Dividend Investors Consider Wynn Resorts?

March 05, 2012 | About:
Investing in gaming stocks has been a tale of two cities. The companies with casinos in Macao, China, Wynn Resorts (WYNN) and Las Vegas Sands (LVS) have rewarded shareholders very well over the last few years. Gaming companies with U.S. – primarily Las Vegas – casinos have not done so well. The U.S. recession has been hard on the casinos. Gaming company MGM Resorts International (MGM) also owns a Macau casino, but the company has struggled to be profitable overall. Although investors may view WYNN and LVS primarily as growth stocks, Wynn Resorts has been aggressive with its dividend policy which may be considered as a longer term plan to reward investors with higher dividend pay outs.

For 2011, Wynn Resorts reported revenue growth of 26% and an EBITDA increase of 41 percent. Adjusted net income for 2011 was $5.58 per share compared to earnings of $2.10 in 2010. Although Wynn generated three-quarters of the year's EBITDA from the company's Macau resorts and casinos, a positive sign was the 60 percent gain in EBITDA from the Las Vegas operations for the year. To illustrate the strange nature of the stock market and investor sentiment, at mid-year 2011, the Wynn share price was 60% above where it started the year, but by the end of 2011, shareholders held stock worth only 10% more than where the shares started out the year.

In comparison, the share price of primary competitor Las Vegas Sands remained within a few percent of break even throughout 2011 and finished the year down 3%. For 2011, Las Vegas Sands reported revenue growth of 37% and an EBITA increase of 58 percent. These were better numbers than those put up by Wynn Resorts yet LVS shares under performed WYNN. Part of the reason may be the market expectations on Las Vegas Sands following a monster 2010. Sometimes it is difficult to figure out why share prices act as they do.

Going forward there are a couple of factors which may keep Wynn Resorts and its share price ahead of the competition. One would be a resurgence in gaming and resort revenues from Las Vegas. Wynn Las Vegas is the premier casino resort in the city and the company spent $100 million in 2011 upgrading the rooms and adding additional entertainment options. In 2011, the company reported increases for both average room rates and casino receipts in Las Vegas. Chairman and CEO Steve Wynn has stated he believes Las Vegas is close to a very strong recovery. Growth in its Las Vegas results plus the expected growth in Macau could put the 2012 earnings from Wynn Resorts well above the current Wall Street analyst expectations.

Another factor to consider is the Wynn Resorts dividend policy. Of the three stocks listed here – WYNN, LVS and MGM – only Wynn currently pays a dividend. The 50 cents per share quarterly rate produces a 1.75% stock yield. The company initiated quarterly distributions in the second quarter of 2010 with a 25 cent dividend. In 2011, the second quarter dividend was increased to 50 cents per share. Wynn Resorts also has a longer term history of paying an annual dividend in November. In 2010, shareholders received $8 per share and in 2011, they received $5 at the end of the year, bring the total distribution to $6.50 for the full year 2011. This level of total dividends puts the WYNN yield over 5%, a nice bonus on top of any share price gains. Investors should be aware that Wynn management has not made any announcements concerning an ongoing dividend policy. The dividend payments and trends discussed are based on the distributions the company has paid over the last several years.

Investing in shares of Wynn Resorts is to a great extent, an investment in the casino business knowledge of the Chairman and Las Vegas casino legend Steve Wynn. Mr. Wynn has led several casino revolutions over the last 30 years. For the last two years, Wynn Resorts has returned cash to shareholders with a steadier dividend payout plus retaining the large year-end distribution. If the profits from Las Vegas start to grow to compliment the profits coming out of China, WYNN investors may see more dividend cash in their brokerage accounts and a significantly higher share price.

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Comments

Cornelius Chan
Cornelius Chan - 2 years ago
As usual, global expansion brings the benefits of diversification. I spent four nights in Macau two years ago and found exactly what I expected; a steady stream of Asiatic humanity displaying their increasing spending power on one of their favorite pastimes.

It would have been nice to hear a mention of Wynn Macau Ltd. (WYNMY). Is the dividend yield really north of 14%? Wow!

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