Posted on: October 17, 2024, 03:15h.
Last updated on: October 17, 2024, 03:15h.
Las Vegas Sands’ (NYSE: LVS) increasing free cash flow could potentially sustain the casino giant’s capacity to uphold and enhance its quarterly dividend and carry out share repurchases.
In a recent report, Moody’s Investors Service indicated that the Venetian Macau operator’s retained cash flow to net debt ratio may increase to 33% over the next 12 to 18 months from 28.8% at the close of the second quarter. This rise would be backed by the ongoing recovery in Macau, where the company’s unit Sands China manages five integrated resorts.
LVS has a history of returning a substantial amount of capital to its shareholders,” affirmed the ratings agency. “Somewhat offsetting this concern is that LVS’s consolidated earnings before interest, taxes, depreciation, and amortization (EBITDA) in normal operating conditions has consistently covered cash outlays for cash dividends and distributions, maintenance capital expenditures, and the repurchase of common shares.”
Moody’s has assigned Sands a “Baa3” rating, just above junk status, with a “stable” outlook.
Sands Dividend Outlook
Following a more than three-year suspension of its payout as the gaming company aimed to conserve capital during the initial stages of the coronavirus pandemic, Las Vegas Sands reintroduced its quarterly dividend in August 2023.
The reinstatement was at 20 cents per share per quarter — a rate that remains unchanged. Before the global health crisis, LVS had been steadily increasing its dividend and was among the highest-yielding names in the gaming sector. Currently, the shares offer a yield of 1.58%. Moody’s estimated the company’s dividend payout to be $150 million per quarter.
The research firm suggested that Sands China may reinstate its dividend in 2025 — a forecast consistent with projections by Wall Street analysts. Presently, the Londoner Macau operator is one of three Macau concessionaires that do not pay dividends, and the sole U.S.-based operator with Macau exposure that does not have a dividend. Melco Resorts & Entertainment (NASDAQ: MLCO) and SJM Holdings also do not pay dividends.
Moody’s highlighted that the increasing free cash flow could enable Sands to continue repurchasing its stock, which amounted to $1.36 billion over the past year. The operator still has $645 million remaining from a previously authorized buyback program.
Sands Has Strong Liquidity
Sands’ liquidity position is robust, with Moody’s noting the operator has $4.7 billion in cash on hand and $4.4 billion available on a revolving credit facility. The company is anticipated to spend $1.5 billion this year, primarily directed towards Londoner Macau and Marina Bay Sands in Singapore. Expenditures for 2025 are projected to decrease to $1.15 billion.
A potential risk to Sands’ credit rating is substantial spending on new projects, which Moody’s suggests would likely be financed with debt. The operator is seeking a casino permit in New York and has expressed interest in Thailand.
From a credit perspective, it is potentially worrisome that LVS “will continue to pursue further and significant global casino resort development opportunities that will likely be funded largely with debt, leading to temporary leveraging,” Moody’s concluded.