Crown (ASX: CWN) is now Crown Resorts. The change follows a successful vote at the group’s AGM last week. Executive chairman James Packer also announced that dividends would not be increased for the next four or five years.
As it stands, Crown’s 37 cents per share annual dividend has not changed for the past four years as the company has opted to spend free cash flow upgrading existing facilities. This will now continue for the near future, as Crown shifts its strategy towards expanding its empire, with new facilities in Sydney, Perth and Sri Lanka to cost around $2 billion. At the current price of around $17, the payout represents a yield of just above 2%.
New projects include a $1 billion casino resort at Barangaroo in Sydney, a $500 million hotel in Perth, and a $420 million five-star resort in Sri Lanka. The investment will result in gearing increasing in the coming years, which will be offset to a degree by retained earnings and the commencement of dividends from Crown’s Hong Kong-listed subsidiary Melco Crown Entertainment.
The investment in Melco Crown has been an excellent investment thus far, with Crown’s US $600 million investment for 34% of the company now worth US$6.2 billion. This represents nearly half of Crown’s market cap of A$12.44 billion.
The next 12 months will be interesting for the ASX-listed casino and resort companies. Skycity (ASX: SKC) has recently signed agreements with the South Australian and New Zealand governments for additional facilities, while Echo Entertainment (ASX: EGP) will likely tee off against Crown soon for a lucrative new casino in the Brisbane CBD. Echo will be out to put a dent in Crown’s aspirations following Crown winning the right to develop at Barangaroo.
Crown Resorts has plenty of work ahead of it over the next few years as it undertakes significant projects in Perth, Sydney and Sri Lanka. The Sydney Barangaroo project has the potential to be a game changer for Crown, and will likely underscore revenue and profit growth for years to come. Long-term investors should consider Crown for exposure to the tourism sector, as well as a proxy for Australian consumer sentiment.
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Motley Fool contributor Andrew Mudie does not own shares in any of the companies mentioned.