If You Can't Beat 'Em, Join 'Em With Las Vegas Sands

Dec. 2.12 | About: Las Vegas (LVS)

By Jayson Derrick

Everyone knows that the odds are stacked against casino patrons, which implies that the odds are stacked (heavily) in favor of the casino. An investor can profit from this by buying a position in a casino stock, specifically Las Vegas Sands (NYSE:LVS)

Las Vegas Sands recently announced a special dividend of $2.75 a share which amounts to approximately $2.3 billion payable on December 18. The dividend highlights their strong balance sheet and commitment to returning capital to shareholders. As of September 30 Las Vegas Sands was sitting on roughly $3.75 billion in cash. Chairman Sheldon Adelson, who is expected to personally take home $1.2 billion from this deal commented "What this special dividend really represents is the unique position our company currently enjoys in the hospitality, leisure and gaming industry." In addition the company announced it will boost their annual dividend by 40% to $1.40 per share beginning in 2013. While the dividend may lower the likelihood of new development projects, the dividend is a reflection of the desire to return free cash flow to shareholders and uncertainty surrounding potential dividend tax policy changes that may come in to affect in 2013. This announcement comes on the heel of competitor Wynn Resorts (NASDAQ:WYNN) which announced a $7.50 special dividend in October.

The company has little short term debt obligations, according to their financials there is only a $98 million payment coming due in 2013 which is considered to be minimal given the company is expected to generate nearly $2.5 billion in free cash flow

Usually when a company announces such a large dividends there is concern about the feasibility of financing current projects. This is not the case for Las Vegas Sands. After the one time special dividend there still remains sufficient liquidity that may be required to fund the $2.5-3 billion Parisian project on Cotai Strip which is the "next big thing" in Asia. The company is set to fund the project with $1 billion in cash. The new luxurious high end gaming property will further tap the potential of the mainland Chinese and surrounding Asian markets. After all the world's biggest gamblers live in Asia and prefer to gamble in the region instead of travelling to Las Vegas. According to a gambling information website Asians make up around 80% of the world's largest gamblers. The resort will feature 3,896 hotel rooms and 500 gaming tables, many of which will cater towards these high rollers or "whales"

Sands Cotai property pictured above consists of 3 hotels: Conrad, Sheraton, Holiday Inn

Las Vegas Sands also owns and operates gaming facilities in Macau. In the first quarter of 2013, the facilities is set to expand gaming operations by opening 200 incremental tables. This should drive results above increasingly low analyst expectations and re-accelerate same store growth. CLSA consumer and gaming research analyst predicts gaming revenue to grow by 15%

To conclude, I like the idea of playing the Asian gaming growth story by investing in Las Vegas Sands due to its leading mass positioning coupled with the special dividend and dividend raise which all drives a favorable risk/reward in my view. Las Vegas Sands is perfectly positioned to capitalize on the never ending growth in Asia for gaming facilities. I believe that is reasonable to see the stock trading at the $55-60 range this time next year.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.