And… They’re back up!

At least they – the markets, I mean – were up last I checked today. The three major American indexes all opened sharply higher this morning after news broke that President Trump might be willing to scale back his China tariffs.

Though who knows what news will break, whether positive or negative, by the time you read this.

What I do know is that things will be volatile. Short term, at least.

That’s why I’ve been doing things a little differently the past few days. I’ve been focusing on well-established, dividend-paying names. These are the types of businesses that you can feel comfortable holding through market turmoil like this.

It was PepsiCo (PEP), Johnson & Johnson (JNJ), and Caterpillar (CAT) on Thursday…

Federal Realty Investment Trust (FRT) and Enterprise Products Partners (EPD) on Monday…

CareTrust (CTRE) and Iron Mountain (IRM) yesterday.

All of these are sleep-well-at-night stocks, or SWANs. They are low-risk, high-quality, dividend-paying businesses that tend to last decades and decades.

But today, I’d like to introduce you to a new category of companies I follow. They’re not quite SWANs, but they’re well on their way.

I call them “SWAN-a-Bes.”

The Ugly Duckling Stocks

If the large, established, reliable dividend payers are SWANs, then we could think of the SWAN-a-Bes as ugly ducklings.

They’re less-established companies that seek to become safely growing businesses – the kind that help their investors sleep well at night through any market condition.

They’re just not quite there yet for one reason or another. Oftentimes, it boils down to a matter of time. They just haven’t been around long enough to build that reliable track record we look for in SWANs.

The late David Fish coined the phrase “dividend challengers,” defining many of these up-and-comers as “U.S. stocks that have grown [their] dividends for the last 5-9 consecutive years.” That’s in contrast with:

  • Dividend contenders, which have a 10- to 24-year track record

  • Dividend champions, or dividend aristocrats, which have achieved at least 25 years of consecutive payout growth

  • Dividend kings, which have a half-century or more to their credit

According to Fish’s “CCC List” – now run by my associate, Justin Law – there are 672 stocks that have hit the “dividend challenger” mark or higher. Only 54 of them have reached the ultimate king level, while around 70 are dividend champions.

The rest are only aiming for greatness, with varying levels of success. So their investors achieve varying levels of profit predictability compared to true, full-fledged SWANs.

It’s important to understand that there is a trade-off here.

On the one hand, larger businesses with longer track records of success have greater chances of providing stable growth. They boast more historical data to analyze, more experience in the market, and more respect among financiers.

On the other hand, it’s typically easier for up-and-comers to double, triple, or quadruple their profits.

So, the upside of the Swan-a-Bes is the potential for growth… rapid growth.

With all that said, let me introduce one that I follow closely.

The Landlord of Vegas

You may remember VICI Properties (VICI) from my coverage of gaming real estate investment trusts (“REITs”).

VICI is solidly in “dividend challenger” territory, having raised its dividend for eight consecutive years now. And the only reason that number isn’t higher is because VICI held its IPO relatively recently, in 2018.

It stands out from its dividend challenger peers because of its impressive size and capabilities. Yet VICI is still far from a dividend king.

Today, it owns 54 gaming properties and 39 other experiential assets such as bowling alleys, health/fitness facilities, and fun parks. Those add up to $37 billion worth of properties, allowing it to be added to the S&P 500.

That’s the shortest amount of time a company has ever taken to go from IPO to that benchmark index. So, again, VICI is quite the “little guy” dividend challenger to talk about.

The REIT also has investment-grade ratings from Fitch (BBB-), Moody’s (Baa3), and S&P (BBB-). And it enjoys $3.3 billion in total liquidity comprised of approximately $525 million in cash, $376 million of estimated proceeds under forwards, and $2.4 billion under its revolving credit facility.

Shares were trading at $32.97 at last check, with a 15.7 times price-to-adjusted funds from operations – the real estate equivalent of earnings – multiple. Its dividend is well-covered and yielding 5.3%.

We believe VICI could return 20% or more over the next 12 months.

It may not be a full-fledged SWAN just yet. But, if the business continues its current trajectory, I have no doubt it will get there soon.

Regards,

Brad Thomas
Editor, Wide Moat Daily

MAILBAG

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