Las Vegas Sands (NYSE:LVS) stands at a crossroads. The world’s largest casino company has not built a new casino since it completed its 6th casino in China in 2016. Now, Las Vegas Sands stock finds itself in decline as a U.S.-China trade war concerns its investors.
However, with Chinese gambling on the rise, high dividends, and an eye on expansion, investors should look at the decline in Las Vegas Sands stock as a buying a opportunity.
View Las Vegas Sands Stock as a China Play
Contrary to the name, most of its revenue no longer comes from Las Vegas or even other American gambling meccas. Today, Las Vegas Sands derives most of its revenue from Macau, the former Portuguese colony that now exists as a Special Administrative Region of China. Macau also exists as the only area in China with legalized gambling.
With little available land in Macau, Las Vegas Sands created what’s now known as the Cotai Strip, modeled after the strip in Las Vegas. This occurred when they filled in a bay in between what was two islands.
Today, like its hometown archrival, Wynn Resorts (NASDAQ:WYNN), this company is now a China play. Six of its 11 major resorts are located in Macau. This comes in well ahead of peers such as Wynn and MGM Resorts (NYSE:MGM).
With plans in the works to sell its Pennsylvania casino, its three Las Vegas casinos will constitute all of its holdings in the United States. The remaining casino is located in Singapore.
Las Vegas Sands Is a Predictable Trade
Las Vegas Sands stock became a penny stock following the 2008 financial crisis as expansion costs nearly bankrupted the company. However, the company recovered. As a result, shares in Las Vegas Sands increased from below $2 per share in March 2009 to over $85 per share in 2013.
Still, Las Vegas Sands stock has traded in a range since then. A 2014 corruption probe in China inspired Macau officials to restrict high rollers. As a result, the stock fell by more than 50%.
As restrictions eased in 2016, the company opened its sixth Macau casino, and Las Vegas Sands again approached its 2014 highs. However, the U.S.-China trade war has again taken the stock’s value down 25% from recent highs.
Las Vegas Sands Offers a High Dividend Yield
However, this decline could constitute a buying opportunity. Despite the stock decline, gambling revenue in Macau rose by 17% in August. Also, the Chinese government has recently considered measures to increase tourism to Macau.
Outside of Macau, the company has shown a renewed interest in new casinos within the United States. Furthermore, with the successful opening of a casino in Singapore in 2010, Las Vegas Sands has also eyed potential projects in other East Asian countries.
The dividend offers another compelling draw to the stock. It has risen every year since 2015, and it pays $3 per share per year. This brings its yield to 4.9%. Analysts expect the company to see 17.1% profit growth this year.
Though they expect that to slow, they still forecast average annual profit growth of 7.2% per year for the next five years. With consensus earnings of $3.56 per share for this fiscal year, the forward price-to-earnings (PE) ratio stands at about 17.1. This comes in well below the average 22.2 PE seen in the last five years.
Final Thoughts on Las Vegas Sands Stock
Investors could have a compelling buying opportunity in Las Vegas Sands. The stock has fallen 25% from recent highs. As a result, the stock trades well below its average PE, and the dividend yield has risen to about 4.75%.
Such a dividend payout bolsters the case for Las Vegas Sands as Wall Street predicts mid-single-digit profit growth over the next few years.
Also, that growth could rise with the Chinese government loosening Macau travel restrictions. It could expand further in later years if the company builds new casinos in the U.S. and East Asia.
For investors who want an Asia play in an American company with high dividend returns, Las Vegas Sands stock offers a compelling opportunity.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.