Should Investors Wager On This 5% Dividend Stock?

Income investors are starved for yield. Due to the continuation of the Federal Reserve’s low interest rate policies over the past several years, high yields are hard to find. Traditional income sources like bonds and bank savings accounts are paying little to no interest right now.
That means income seekers are in a bind. Fortunately, there is a solution, but it involves a bit more risk-taking. There are plenty of stocks offering high yields, due in part to falling stock prices, dividend growth, or a mix of both in some cases.
Las Vegas Sands (NYSE: LVS), a major casino operator, is a company struggling to turn itself around. After several years of tantalizing growth fueled by a booming gaming market in China, Las Vegas Sands has fallen on hard times. Its stock price is 16% off its 52-week high. Its Macau operations have suffered as Chinese regulators cracked down on illicit gaming activities in the region.
Should income investors take a gamble on this 5% dividend stock?

China Cracks Down

Las Vegas Sands has been dealt a bad hand. Macau is a key business for Las Vegas Sands and has propelled its dramatic growth for years.
But China’s crackdown on criminal activity and the declines in the Chinese stock market are significantly suppressing gaming activities. Last year, Las Vegas Sands’ revenue and earnings per share declined 20% and 29%, respectively. The weakness was concentrated in its core casino operation. Revenue in that business dropped 24% in 2015.

Enticing Yield

Despite Las Vegas Sands’ poor fundamentals and its declining earnings, the company continues to increase its dividend. On Jan. 28 Las Vegas Sands increased its dividend by an impressive 10%. The new annualized dividend is $2.88 per share, which is an attractive 5.8% based on the March 9 closing stock price.
That is an enticing yield, which could lure income investors to buy the dividend stock. But Las Vegas Sands only generated $2.47 in earnings per share last year. A dividend payout ratio exceeding 100% of earnings is not sustainable over the long term.
One factor helping to offset Macau weakness is that Las Vegas Sands is doing fairly well in other areas of its business. Revenue dipped slightly in its rooms, food and beverage, and convention segments. But revenue from malls increased 2%. The problem is that the casino business represents almost three quarters of Las Vegas Sands’ total revenue.
Las Vegas Sands isn’t deterred and continues to increase dividends anyway. Presumably, management feels a turnaround in Macau gaming is around the corner.

Dividend Stock Is a Bet on Macau

It’s easy to see why Las Vegas Sands targeted China as its next growth market. China is a premier emerging market. Its economy is growing at high rates, and it has a population exceeding 1 billion. Its growing economy and rising consumer class make it fertile territory for Las Vegas Sands.
High-yield dividend stocks are tempting, but they can also be dangerous. Investors need to make sure that the dividend is sustainable before buying, and when it comes to Las Vegas Sands, that is not guaranteed.
If the declines in revenue and earnings continue, the company will not be able to maintain its dividend. No company can pay a dividend if the supporting profits and cash flow aren’t there. Investors should keep this in mind before wagering on Las Vegas Sands and its 5% dividend.

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