Las Vegas Sands: Rising Free Cash Flow and its Impact on Dividends and Share Buybacks

Posted on: October 17, 2024, 03:15h.
Last updated on: October 17, 2024, 03:15h.

Las Vegas Sands (NYSE: LVS) is entering a promising phase as its rising free cash flow positions the casino giant to maintain and potentially increase its quarterly dividend while also repurchasing shares. Recent analysis from Moody’s Investors Service underpins this optimistic outlook, suggesting a resumption of shareholder returns that had been halted during the pandemic.

Significant Financial Recovery

In a recent report, Moody’s projected that the ratio of retained cash flow to net debt for Las Vegas Sands could surge to 33% over the next 12 to 18 months, which is a notable jump from 28.8% at the end of Q2 2024. This growth is primarily driven by an ongoing recovery in Macau, where Sands China—LVS’s subsidiary—operates five integrated resorts. The resurgence in the gaming industry in this region is a significant factor in bolstering the company’s financial health.

Moody’s emphasizes the historical trend of LVS returning a considerable amount of capital to its shareholders. It stated, “LVS has historically returned a significant amount of capital to its shareholders,” indicating a strong commitment to shareholder value. The firm further noted that, in normalized operating conditions, the company’s earnings before interest, taxes, depreciation, and amortization (EBITDA) sustainably cover cash expenditures related to dividends, maintenance, and stock repurchase activities.

Outlook for Dividends

After a lengthy hiatus of over three years, Las Vegas Sands reinstated its quarterly dividend in August 2023, marking a significant turnaround for the company. The payout currently stands at 20 cents per share per quarter, a remnant of its robust growth trajectory before the pandemic. At this rate, the annual yield currently sits at 1.58%, and the dividend effectively costs the company around $150 million each quarter.

Looking ahead, there is speculation that Sands China may recommence its dividend distribution in 2025, an insight that is in line with predictions from Wall Street analysts. Notably, Sands China remains one of only three Macau concessionaires yet to pay dividends, with major competitors like Melco Resorts & Entertainment and SJM Holdings also opting out of cash distributions.

Share Repurchases: A Strategic Focus

In addition to maintaining dividends, Las Vegas Sands has actively engaged in stock repurchase initiatives. The company has bought back shares amounting to $1.36 billion over the past year and has $645 million remaining from its previously authorized buyback program. This strategy reflects the management’s confidence in the company’s long-term value and its commitment to enhancing shareholder returns through both dividends and share repurchases.

A Strong Liquidity Position

Las Vegas Sands boasts a robust liquidity profile, with $4.7 billion in cash reserves and an additional $4.4 billion available via an undrawn revolving credit facility. For the current year, the company is expected to allocate $1.5 billion for capital expenditures, predominantly directed toward its operations in Londoner Macau and Marina Bay Sands in Singapore. Looking forward to 2025, capex is projected to decrease to approximately $1.15 billion, suggesting a possible reduction in liquidity strain.

However, while the company enjoys a solid liquidity framework, Moody’s warns of potential risks associated with aggressive spending on new projects that may necessitate additional debt financing. Las Vegas Sands is actively pursuing casino permits in New York and expressing interest in new projects in Thailand, which could lead to temporary leverage concerns.

Conclusion

In summary, Las Vegas Sands finds itself at a pivotal juncture, with increasing free cash flow expected to facilitate both dividend stability and stock buybacks. With Moody’s projecting a favorable outlook and the company maintaining a healthy liquidity position, shareholders may soon see renewed rewards for their investments. However, careful navigation of new investments and potential debt implications will be essential as LVS seeks to expand its global footprint in the competitive gaming industry.

As Las Vegas Sands continues to recover post-pandemic, the broader casino landscape will be watching closely to see how this giant harnesses its growing financial strength for both its operations and its loyal investors.