Las Vegas Sands (NYSE:LVS) and Wynn Resorts (NASDAQ:WYNN) are among 60 S&P 500 members that could need to cut or suspend dividends to conserve capital as the coronavirus pandemic weighs on the economy, according to one equity strategist.
In a note out earlier this week, Jefferies global equity strategist Sean Darby published a list of US companies across an array of sectors and industries that could be dividend offenders, with LVS and Wynn as the only gaming names in the group. As of Wednesday’s close, the Venetian operator yields 7.84 percent, while Wynn sports a yield of 7.41%. In both cases, that’s more than triple the comparable metric on the S&P 500.
As companies become more aware that they are running their businesses for the bond holders (and credit markets) rather than for the equity investors, their focus will turn to managing cash rather than earnings,” said Darby in a note to clients.
What the strategist is saying there is that companies are unlikely to want to endure credit downgrades in the name of defending their dividends. That’s a relevant concern in the gaming industry, which has recently been awash in warnings about credit profiles or downgrades of those marks.
Coverage Matters, So Does Debt
By Darby’s estimates, LVS has a dividend coverage ratio of 1.14 (the higher, the better with that metric) and a net debt-to-equity ratio of 132.3 percent, good for a middle-of-the-road figure among the 60 companies Jefferies analyzed.
The Marina Bay Sands operator raised its payout earlier this year, and the company has never cut its dividend. Some analysts believe that with $4.23 billion in cash, LVS is positioned to defend its dividend this year.
Wynn is in a more precarious financial spot, with dividend coverage of just 0.31 and a debt-to-equity ratio of nearly 534 percent, according to Darby. Wynn Macau, the operator’s China holding company, said Tuesday it’s not paying a dividend for 2019, citing the need to conserve cash amid the COVID-19 pandemic.
Neither LVS nor Wynn have commented publicly on the fate of their dividends.
Wouldn’t Be Surprising
With the coronavirus straining gaming operations from the US to Asia, it would not be surprising to see some negative dividend action in the industry. In fact, it’s already arrived, with regional operator Boyd Gaming (NYSE:BYD) saying last week it’s suspending its payout.
MGM Resorts International (NYSE:MGM) said last month it’s halting a $1.25 billion share buyback program due to market volatility. The Mirage operator, which yields 5.10 percent, hasn’t commented on its dividend, either.
Wynn last cut its dividend in 2015 following a plunge in Macau revenue, with then-CEO Steve Wynn saying at the time it’d be “foolish to issue dividends on borrowed money.” The Encore operator’s payout has doubled since the 2015 reduction.