After a horrible couple of years for the Macau gaming economy and the Chinese economy as a whole, shares of casino operator Las Vegas Sands Corp. (LVS) stock are now down more than 50% from their post-crisis highs in early 2014. Headed into 2016, the Macau government corruption crackdown and the possibility of a city-wide smoking ban are still weighing heavily on the world’s largest gaming market, and general weakness has been dragging down China’s economic growth numbers.
Traders are now asking themselves whether it’s time to finally cut ties with LVS stock or whether the bleak outlook has already been priced into the stock’s share price.
The Bear Case
Not only have 19 consecutive months of year-over-year gross gaming revenue declines cut Macau’s monthly revenue total in half from its 2014 highs, December’s 21.2% decline indicates that there is no solid evidence that the market has stabilized just yet. As government scrutiny has increased, Macau’s junket infrastructure has collapsed and the gaming economy has suffered an outflow of VIP gamblers, a segment of the casinos’ customer base that previously provided the majority of revenue.
In addition to falling revenues, LVS stock’s generous 7.0% dividend may actually be a bit too generous. Not only is it by far the highest dividend yield in the company’s history, LVS’s yield is currently well above the S&P 500 average yield of only 2.3% at a time when the company’s earnings have taken a big dip from their 2014 peak.
Surprisingly, CEO Sheldon Adelson indicated on the company’s last earnings call that LVS still intends to hike its quarterly dividend from $0.65 to $0.72 in 2016, a move that would put the company’s payout ratio near 120%, an uncomfortably high level. If the company instead decides that a dividend cut is best for business, the stock could be in for a huge swoon similar to the one that Macau rival Wynn Resorts, Limited (WYNN) suffered in April of last year after announcing its own dividend cut.
The Bull Case
Although the bears can certainly make a compelling case, LVS stock bulls have…
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