There are some major growth tailwinds for the gaming industry right now. Not only is the economy strengthening, but there is a clear trend toward legalized gaming in the United States, and more than half of U.S. states still don't allow commercial casinos.
However, investing in casino stocks isn't right for everyone -- casinos are a highly cyclical business, and the stock prices of casino operators can be highly volatile.
One alternative is to invest in real estate investment trusts, or REITs, that own gaming properties. This gives investors some exposure to the growth potential in the gaming industry, with far more predictability when it comes to cash flow and dividend income. Gaming and Leisure Properties (NYSE: GLPI) was the first gaming REIT in the market and could be a good fit for many investors.
Gaming and Leisure Properties: The short version
Gaming and Leisure Properties is a REIT formed in 2013 when Penn National Gaming (NASDAQ: PENN) spun off its real estate assets. The company owns 52 gaming properties in 17 states as of mid-2021. As you might expect, Penn National Gaming is still the largest tenant, although the company owns properties operated by Caesars Entertainment (NYSE: CZR), Boyd Gaming (NYSE: BYD), and other major gaming companies.
Properties are acquired and are leased to their operators on a net lease basis. This is a great model for steady income -- tenants sign long-term lease agreements with gradual rent increases already built in (known as escalators). Plus, the operators are responsible for paying the variable costs of the properties, such as property taxes, insurance, and most maintenance expenses.
Reasons to invest
The two biggest reasons to invest in Gaming and Leisure Properties are income and growth potential. On the income side, the company has an excellent track record of paying (and increasing) dividends and pays an above-average 5.8% dividend yield.
On the growth side, Gaming and Leisure Properties grows by acquiring existing casino properties. Of its 52 properties, four are new acquisitions in 2021, and this could certainly ramp up as the economy grows and more casino properties are constructed. Plus, with about $1.2 billion of available credit, the company has the ability to pursue opportunities as they arise.
Downsides and risks
While Gaming and Leisure Properties is certainly less risky and likely to be less volatile than traditional casino stocks, that doesn't mean it's risk-free. High-dividend stocks like REITs tend to be more sensitive to rising interest rates than the average company, so it's possible shares could come under pressure if inflation remains elevated and rates rise.