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Add These Two High-Yield IPOs To Your Watchlist

There will be two new opportunities for earning high-yield dividend income hitting the market this year. With the universe of quality high-yield dividend stocks so small, any new additions should be scrutinized to determine if they are worthy investments.

Last week’s initial public offering (IPO) REIT spin off by MGM Resorts International (NYSE:MGM) priced at the top of the expected share value range and the shares moved up when trading started. The successful IPO should push other new REITs into the market in 2016. This would be good news for income focused investors.

MGM Growth Properties (NYSE:MGP) was launched to own a handful of MGM’s casino properties and then lease them back to the gaming company. The spin-off was a move to help MGM reduce its very high debt load. The new REIT took out a $3.2 billion loan and the IPO proceeds were about $1.1 billion. MGM netted about $4 billion that will go to pay down a significant portion of the company’s $12 billion in long term debt. The 57.5 million shares sold in the IPO were 27% of the total company. MGM owns the balance.

The REIT starts out its career owning seven MGM managed properties:

  • Mandalay Bay
  • The Mirage
  • Monte Carlo
  • New York-New York
  • Luxor
  • Excalibur
  • The Park, a dining and entertainment complex located between New York-New York and Monte Carlo which opened in April 2016.

All of the properties are on a single master lease with MGM. The lease has a 10-year term with extension options that will take it out to 30 years. The initial rent payment is $550 million per year with a built in 2% rent escalator on $495 million. The other $55 million will grow with the profitability of the...