For casinos, the more customers, the better (obviously). And no country is more populous than China. As gambling is illegal in Mainland China, and Macau’s proximity to the nation, the former Portuguese colony and Special Administrative Region (SAR) of China has an abundance of casinos overflowing with customers.

Among Macau’s major listed casino companies are Wynn Macau (1128.HK), MGM China (2282.HK), Sands China Ltd (1928.HK), and Galaxy Entertainment Group(GEG) (0027.HK).

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With outstanding strong cash flows, these stocks have become known for their income-generating ability. But for investors, which is the best Macau casino stock for dividend hungry investors?

Global Slowdown Can Be Felt On Macau’s Casinos

Although Macau is the largest gambling hub in the world, business in the city has slowed due to the slowing in China’s economy from trade war. Recent negative Chinese state media coverage on a major Macau junket operator has also hurt demand from the VIP segment as well. It is reported that the VIP segment has suffered 20% and 25% year-on-year contraction on October and November respectively. This could also be due to emergence of rival gaming spots in the Asia Pacific region.

After declining just 0.5% year-on-year for the first half of 2019, casino gross gaming revenue in the city declined 8.5% year-on-year to 22.9 billion Macau patacas (US$2.8 billion) in November.

One important factor to keep an eye on for dividend investors is the renewal or a potential increase of concessions that allow the casinos to operate in Macau. Although most expect the status quo to remain, the current concessions will expire in 2022.

Which Casino Is Offering The Highest Dividend Yield?

If you are looking purely on the dividend yield front, MGM China has the lowest yield of around 1.1%, while Sands China and Wynn Macau have dividend yields of around 5.4% and 5.3% respectively. Due to it paying a special dividend of HK$0.46 per share in 2019, Galaxy Entertainment has a yield of around 7%.

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Sustainable Payout Ratio For Macau’s Casinos?

In 2018, Wynn Macau’s payout ratio was 21.4%. A better indication of Wynn Macau’s dividend sustainability might be its trailing 12-month payout of 66%.

In 2018, MGM China’s payout ratio was 46%. In terms of the TTM, its payout ratio is even lower. Because Galaxy Entertainment pays a special dividend rather than a normal dividend, using a payout ratio on it isn’t particularly relevant.

Aa for Sands China, its 2018 payout ratio was 108%. Although Sands China paid 8% more in dividends than what it made in terms of EPS last year, the stock’s moderate dividend yield indicates that most investors expect Sands China’s future expansions and renovations to bring in enough earnings to cover the gap.

Hunting For Cheap Stocks?

Given that past earning per share (EPS) results can be affected by one-time items, many use forward price-to-earnings (PE) ratios as a valuation metric to judge stocks rather than the traditional PE ratio. In terms of forward PE valuations, Wynn Macau is the cheapest – sporting a forward PE ratio of 13.6.

MGM China is not far behind at 13.8. Sands China has a forward PE of 17.2 while Galaxy Entertainment has a forward PE ratio of 17.5.

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