Copy
AMM Dividend Letter (Volume 2)
AMM Dividend Letter
Vol. 2

Dear Valued Client,


Below you will find our second installment of the AMM Dividend Letter.  In this issue we take a closer look at Wynn Resorts (WYNN) as a dividend growth opportunity.  WYNN reminds us that dividend/income investing need not be mutually exclusive from growth investing.  In fact a core component of our dividend strategy is the ability and willingness for the company to grow their dividend over time.  WYNN appears to fit the bill on both accounts. 
 
Since we manage several different portfolio strategies, not all clients will have exposure to securities mentioned in this report.  As always, don’t hesitate to call or email if you have any questions or if you want to discuss your specific portfolio strategy in greater detail.  

Sincerely,
Your Portfolio Management Team


An Enduring Dividend Income Stream


Investors in commons stock are able to earn a cash return on their investment either through 1) selling all or a portion of their stock and realizing a gain, or 2) via dividends received from the company.  It is important to distinguish cash return from unrealized “paper gains”, since investors can only spend cash.
 
A key goal of our Dividend Strategy is to maximize the growth in cash return via dividendsCompanies that have a policy of consistent dividend growth reward their shareholders with a pay raise every time they increase their dividend.  Ultimately, long-term investors in these kinds of businesses are able to build a growing stream of income for future years, while also benefitting from capital appreciation over time.  Below we outline the 3 core building blocks for constructing this kind of portfolio:
  1. Seek to invest in quality businesses.  We define quality as the ability to generate a high rate of return on capital invested, and possessing a high degree of financial strength. 
  2. Since the price you pay for anything is the ultimate determinant of your return, we seek to invest at fair or, ideally, bargain prices.
  3. Finally, we seek to invest in companies with current dividend policies in place, and the ability to grow the dividend over time.


Dividend Stock in Focus

Wynn Resorts (WYNN): $165.87*


Profile:

Wynn Resorts (WYNN) owns and operates luxury casinos in the United States and China. The company was founded in 2002 after Steve Wynn sold Mirage Resorts, his previous hotel and casino company, to MGM Grand for $6.6 billion. Following the sale, he went on to purchase the Desert Inn Hotel, demolished it, and then built his namesake hotel and casino the Wynn Las Vegas which opened in 2005. In December 2008, the second Wynn hotel, Encore Las Vegas, opened next door to the Wynn Las Vegas. 
 
Wynn Resorts also owns and operates two luxury hotel and casinos in Macau (a Special Administrative Region of China): the Wynn Macau and the Encore at Wynn Macau.  Wynn Resorts is currently constructing another luxury hotel and casino in Macau, the Wynn Palace, along the Cotai Strip.

Dividend History:

In May 2010 WYNN started paying a regular quarterly dividend of $0.25 per share. WYNN has increased its dividend every year since and currently pays a quarterly dividend of $1.00 per share. WYNN will pay a total of $4.00 per share in FY 2013 (not shown in chart below), a total growth rate of 300% and a 4 year compound annual growth rate of 41% for the quarterly dividend.


Data from S&P Capital IQ

On November 5, 2013 WYNN announced another increase to its quarterly dividend for fiscal year 2014. The quarterly dividend will increase to $1.25 per share boosting the dividend yield to 3% based on its current share price around $165.
 
WYNN is also known for paying out a special dividend. Every year since 2006, except for 2008, WYNN has paid out a special one time dividend.
  • 2006 = $6.00/share
  • 2007 = $6.00/share
  • 2009 = $4.00/share
  • 2010 = $8.00/share
  • 2011 = $5.00/share
  • 2012 = $8.00/share
Again, On November 5, 2013 WYNN announced another special dividend of $3.00 per share to be paid on December 6, 2013 to shareholders of record as of November 20, 2013.

3 Catalysts for Dividend Growth and Price Appreciation:

Macau:
 
Macau was once a Portuguese colony that was returned to China in 1999. Macau and Hong Kong are the two Special Administrative Regions of China; however Macau is the only region where gambling is legal. Its location places it right next to one of the world's largest concentrations of potential gaming customers and WYNN is one of the few hotel casino operators with access to this market.
 
Prior to 2002 gaming in Macau was permitted as a government-sanctioned monopoly with a single concessionaire. Then in 2002 the government of Macau granted 3 more concessions for the operation of casinos and Wynn Macau was one of those 3 concessionaires.
 
WYNN is currently the premier luxury brand in Macau. By focusing on the VIP market WYNN is able to attract customers who pay higher room rates and bet more per hand at the tables. WYNN consistently generates the highest revenue and EBITDA per table amongst its competitors**. 
 
In 2016 WYNN will open its latest Macau casino on the Cotai Strip, the Wynn Palace. Once opened the Wynn Palace will effectively double WYNN's gaming tables and add another 2,000 rooms. The Wynn Palace has accounted for a high degree of capital expenditures at WYNN, however upon completion of the Palace in 2016 we expect the excess Free Cash Flow to go to increasing both quarterly and special dividends.
 
Ultimately, high barriers to entry for new competitors plus the ability to charge premium prices allows WYNN to generate high excess returns on its Chinese properties.
 
Steve Wynn:
 
WYNN shareholders are investing right alongside Steve Wynn who owns 9% of the company. From 1973 to 2000 Steve Wynn generated annualized shareholder returns of 24.9% for his previous company Mirage Resorts**.                      
 
As the largest shareholder Steve Wynn is highly incentivized to repeat his past performance. In the last 5 years, with “Steve” at the helm, WYNN has grown its Return on Equity (ROE) to 62% and its Return on Capital (ROC) to 11%.


Data from S&P Capital IQ

Japan:
 
It appears in 2014 legislation will be introduced to legalize gambling in Japan, another potentially large gaming market. WYNN is currently in talks with representatives in Japan. Nothing more has been said as the talks are preliminary at this point.  Still, this fledgling opportunity further highlights WYNN’s brand strength and global reach, and could provide a boost to shares if a Japanese deal comes to fruition.

Conclusion:

Our fair value estimate for WYNN is $195 per share based on a discounted cash flow analysis.  At current prices, we view WYNN as a high quality, dividend growth company trading at a discount price.

Price as of the close November 29, 2013
** Per Morningstar.



Chart courtesy of Stockcharts.com

Further Reading


SLM Corp (SLM):
  • Some common misconceptions about Sallie Mae's federal guaranteed and private student loan portfolio. (Read it here)

Exxon Mobil (XOM):
  • Warren Buffett and Berkshire Hathaway have taken a new and large position in Exxon Mobil. (Read it here)
  • What does Warren Buffett see in Exxon Mobil? (Read it Here)
If you have family or friends that would benefit from a portfolio of income producing stocks please forward this email to them.


The opinions expressed in "The AMM Dividend Letter” are those of Gabriel Wisdom, Michael Moore and Glenn Busch and do not necessarily reflect the opinions of American Money Management, LLC (AMM), an SEC registered investment advisor who serves as a portfolio manager to private accounts as well as to mutual funds. Clients of AMM, Mr. Wisdom, Mr. Moore, Mr. Busch, employees of AMM, and mutual funds AMM manages may buy or sell investments mentioned without prior notice. This newsletter should not be considered investment advice and is for educational purposes only. The opinions expressed do not constitute a recommendation to buy or sell securities. Investing involves risks, and you should consult your own investment advisor, attorney, or accountant before investing in anything. Current stock quotes are obtained at http://finance.yahoo.com. Prices are as of the close of the market on the date for which the price is referenced.

About American Money Management


American Money Management is a Registered Investment Adviser located in Rancho Santa Fe, California. American Money Management may only transact business in those states or countries in which it is registered, or qualifies for an exemption or exclusion from registration requirements. For non-clients of the firm, American Money Management's web site is limited to the dissemination of general information pertaining to its investment advisory services.


Please contact Gabriel Wisdom or Michael Moore at 888-999-1395 to find out if we may conduct advisory business in the state or country where you reside. Accordingly, American Money Management does not, and will not, effect or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, through this website. Any subsequent, direct communication with a prospective client shall be conducted by an American Money Management representative who is either registered or qualifies for an exemption or exclusion from registration in the state or country where the prospective client resides.

Copyright © 2013 American Money Management LLC, All rights reserved.
Email Marketing Powered by Mailchimp