This Stock Pays Me Nearly 8% a Year, and I Can’t Stop Buying It

Vici Properties (VICI +1.19%) is one of my favorite dividend stocks, and I’ve owned it for more than six years. To say that its stock price hasn’t performed well would be an understatement, and thanks to a recent decline, shares now yield about 7.7% annually, close to the highest level in its history.

Despite the poor stock price performance, I’m still a big fan of Vici from a long-term perspective. Here’s why I’ve added to my position several times recently, and why I’m likely to continue doing so while the high yield remains.

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Vici Properties and its dividend

If you aren’t familiar with the company, Vici is a real estate investment trust, or REIT, that owns 103 properties, most of which are occupied by gaming businesses. It owns the real estate for some of the most famous casinos on the Las Vegas Strip, including Caesars Palace, MGM Grand, and The Venetian. Tenants lease the properties under long-term agreements, up to 50 years, with rent increases tied to inflation. In short, the business is designed to generate predictable, growing income from its properties.

Vici spun off from Caesars Entertainment in 2017 and has increased its dividend for eight consecutive years. And while a 7.7% yield might sound high, Vici only expects to pay about 75% of its funds from operations (FFO) as dividends this year, a very comfortable payout level for a REIT. Not only is the dividend well covered by the company’s income, but the built-in rent increases in its leases should allow it to maintain its dividend growth streak.

Why is the stock down?

To be clear, Vici’s business is performing quite well. Its casino tenants are paying rent, and there’s no reason to believe any of them are struggling, or will be anytime soon. Vici’s rent keeps rising every year, the dividend keeps growing, and the company has done a great job of finding creative ways to invest its capital, even in a difficult growth environment for real estate businesses.

The biggest reason for the stock’s performance is interest rates. With the 10-year Treasury yield over 5%, income investors have more alternatives, and rising rates also make it more expensive for REITs to borrow for growth.

The bottom line is that none of the reasons why Vici is down changes my long-term thesis. A lower stock price allows me to lock in a higher yield on cost for every share I add. At the current price, a $10,000 investment yields about $770 in annual dividends, and this income should grow over time. As long as Vici’s yield is high simply because its stock price has fallen despite strong business performance, I’m happy to keep adding shares and building an income stream.