A Surprise Outlier View on Las Vegas Sands' (LVS) Special Dividend

November 28, 2012 10:14 AM EST
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Cantor Fitzgerald begins its thesis on Gaming and Lodging stocks with a review of classic product life-cycle theory. You know - introduction, growth, maturity, and decline. So right away it was clear where analyst Robert LaFleur was gong. He thinks, by and large, gaming companies have transitioned from the growth phase to the maturity phase.

In the report, LaFleur cites two recent examples that illustrate his point. The first is Las Vegas Sand's (NYSE: LVS) recent announcement of a $2.75 special dividend, and the second is Penn National Gaming’s (Nasdaq: PENN) recent announcement that they are transitioning to a REIT. These events are two sides of the same coin, thinks LaFleur.

The following in an excerpt from the report:

"Different forces are producing similar outcomes for diverse gaming companies that appear to have very little else in common. The lack of sufficient investment opportunities at home and abroad is pushing former casino development powerhouses like PENN and LVS to shift gears and change their focus towards returning capital to shareholders. PENN’s shift took the form of a REIT conversion. LVS has chosen sharp increases in regular dividends and the introduction of a special dividend."

LaFleur doesn't think gaming companies like Wynn (NYSE: WYNN) and MGM (NYSE: MGM) will rush to convert to REITs, but he thinks lack of growth opportunities will certainly push them to return more capital to shareholders.

No discussion of gaming would be complete without at least some discussion of overseas markets such as Macau. Certainly they are growing, right? Yes and no.

"While the introduction of gaming in overseas markets complicates this analysis, we think markets like Macau and Singapore had very brief introduction phases, short but stratospheric growth phases, and are now entering their own versions of early maturation (or at least a very different phase of their growth cycle)," wrote the analyst.

The bottom line is casinos are all grown up. Expect slower growth, fatter dividends, more buybacks, and other creative ways to return of capital to shareholders.

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