An 8.5-acre lake glistens in the desert. A song begins. A crowd gathers. Then more than 1,214 jets of water fly through the air, dancing in time with the music.
This iconic water display is one of the instantly recognizable landmarks in Las Vegas – The Fountains of Bellagio.
It’s also one of the most photographed spots in the U.S. and the site of George Clooney’s casino heist movie, Ocean’s Eleven.
And now you can own a stake in the iconic property behind it, the Bellagio, while collecting a reliable, growing yield.
My Favorite Income Play
Here at the Intelligent Income Daily, we help you build reliable streams of stock market income.
As regular readers will know, my favorite stock market income play is Realty Income (O).
This REIT (real estate investment trust) buys up real estate and collects rent from recession-resistant businesses.
Then it’s required by law to pass on at least 90% of its taxable income to shareholders in the form of dividend payments.
And Realty Income has just snagged an attractive deal on the Bellagio.
Realty Income Buys the Bellagio
The Bellagio was built on the site where The Dunes hotel and casino used to be.
In 1992, real estate developer Steve Wynn bought The Dunes. He planned to demolish it and build a new resort. Inspiration came from the village of Bellagio in northern Italy.
Though the large lake and fountain may seem like a waste of precious water in the desert, city authorities allowed Wynn to build the attraction because it used less water than the golf course at The Dunes.
By the time the Bellagio was completed, in 1998, it was the most expensive resort ever built. Since then, it has become one of the most popular and most profitable casinos in Las Vegas.
In 2019, the casino operator, MGM Grand, sold the property to the private equity group Blackstone. It then signed a deal to lease the resort for 30 years.
The Bellagio was one of the trophy properties Blackstone put into its private real estate investment trust, the Blackstone Real Estate Income Trust (BREIT).
BREIT was a popular fund for income investors. But as the Fed started hiking interest rates, investors started to ask for their money back. They felt they could get better yields on risk-free Treasuries. And they were worried about the value of real estate going down.
BREIT is a private fund. So, they couldn’t just sell their shares on the market. Instead, they had to ask Blackstone to withdraw their money from the fund.
But BREIT had already invested the money into real estate. It didn’t have the cash on hand to satisfy redemptions. So, it was forced to sell properties in its portfolio.
That gave Realty Income an opening to pick up quality assets at a bargain price. It paid $300 million for a 22% stake in the Bellagio resort.
How This Purchase Strengthens
Realty Income’s Portfolio
So how does the Bellagio fit into Realty Income’s recession-resistant portfolio?
Although it’s counterintuitive, gambling is a recession-resistant business.
As you can see, after the dot-com crash in 2000, gambling revenue dropped by just 7%.
And during the 2008 financial crisis, it fell by 15%.
That may hurt profits for the casino operator. But it’s more than enough to pay the rent.
During the pandemic gaming revenue fell 23%. That’s despite lockdowns and travel restrictions.
More important, casino operators continued paying 100% of their rent on time. And that rental income is all that matters to Realty Income and other REITs.
How You Can Profit from Owning the Bellagio
Realty Income is known as the “Monthly Dividend Company.” It pays a dividend every month, like clockwork, to shareholders.
And it raises the dividend four times a year. In fact, it’s likely to announce another dividend hike in a few weeks.
Realty Income has kept its dividend growing for 30 years. So, it’s been through three major recessions – in 2001, 2008, and 2020 – without missing a beat.
Right now, Realty Income trades at 14.1x Adjusted Funds from Operations (“AFFO”).
This financial metric gives investors a picture of the cash a REIT has available for distribution to shareholders. And it’s one of the most important metrics we track here at Wide Moat Research.
So to put this in context, Realty Income is currently trading at a 20% discount from its historical average of 17.7x. That means you can buy the same cash flow for a lower price.
That’s why it’s a good time to invest in this 5.4% yielding stock.
It’s not every day that you can purchase a stake in the Bellagio at a discount. But with Realty Income, you can own it and profit from it.
Happy SWAN (sleep well at night) investing,
Brad Thomas
Editor, Intelligent Income Daily
P.S. Realty Income is just one of the profitable plays in our Intelligent Income Investor portfolio.
Here at Wide Moat Research, we invest in companies that will succeed no matter what happens in the short term. And our top picks will continue to reward shareholders with growing income for many years to come.
To find out what our latest strategic play is, click here.