With a Dividend Yield of More Than 5%, Is Vail Resorts Stock a Buy?

Key Points

• The dividend yield sits at about 5.5%, but the company's dividend payments exceed its earnings.

• Season-pass dollars are rising even as season-pass unit sales dip, showing strength in pricing but slower growth in customers.

• A return of Rob Katz as CEO could be a catalyst, though weather and execution remain wildcards.

• 10 stocks we like better than Vail Resorts ›

Vail Resorts (NYSE: MTN) has a dividend yield north of 5% today. That's eye-catching for a company that owns some of the most valuable ski assets in North America and abroad.

The meaty dividend yield comes as the stock has lagged in recent years. Softer visitation from non-pass guests, weather variability, and execution hiccups have weighed on results and ultimately on investor sentiment toward the dividend stock. Those moving pieces matter when you're evaluating whether a high-yield stock is a bargain or a value trap

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Slow growth but decent profits

Vail's latest quarterly update offers a mixed picture. In early June, the company reported results for fiscal Q3 (the quarter ended April 30) and trimmed full-year guidance on weaker-than-expected spring lift-ticket visitation. That's the downside. The upside is that profitability remains solid. Management now expects fiscal-year Resort reported earnings before interest, depreciation, interest, taxes, and amortization (EBITDA) of $831 million to $851 million and net income attributable to Vail of $264 million to $298 million. Yes, this is down from the prior quarter's guidance of $841 million to $877 million for EBITDA and $257 million to $309 million for net income -- but it's still solid for a company with a market capitalization of less than $6 billion.

Importantly for dividend investors, the board reinforced its commitment to shareholder returns by declaring a quarterly dividend of $2.22 per share.

Notably, net income would be substantially higher if it weren't for the company's debt load. Vail estimates that its full-year net interest expense will be between $167 million and $171 million. Net debt sat at roughly 2.6 times total trailing-12-months EBITDA -- a high but manageable level for an asset-heavy, seasonal business.

Season pass trends are steady in dollars but softer in units. Through May 27, season-pass units for 2025 to 2026 were down about 1% while dollars increased roughly 2%, helped by higher pricing. That mix underscores the strength of Vail's advance-commit strategy, but it also hints at slower customer growth.

Meanwhile, leadership is notably back to a familiar face -- someone Vail shareholders associate with success in years past. On May 27, the board brought back longtime leader Rob Katz as CEO and reaffirmed the spring metrics it had shared in April. The move followed a challenging season and shareholder pressure to improve execution and capital allocation.

A cheap valuation for a risky dividend

At today's price near $159, the $2.22 quarterly dividend ($8.88 annualized) implies a yield of about 5.5%. That's compelling for a premium leisure brand with scale advantages across 40-plus resorts.

The dividend's risk, however, is evident in Vail's high payout ratio, or the percentage of earnings the company is paying out in dividends. Using the midpoint of management's full-year guidance, earnings per share (EPS) for the year could be around the low $8s, making the $8.88 dividend more than 100% of expected GAAP earnings this year. Management, however, has been explicit that the current dividend level reflects strong cash generation and that any future growth depends on a material increase in cash flows. And when you flip over to the company's cash flow statement, you will see that free cash flow is substantially higher than net income for the trailing 12 months (free cash flow is close to $400 million while net income is closer to 300 million), and that it exceeds the $332 million it has spent on dividends during that period.

Translation: the payout can be maintained if cash flow holds up, but investors shouldn't assume future dividend hikes without better fundamentals.

Helping bolster its returns, the company also returns capital via share repurchases. Vail repurchased about $70 million of stock fiscal year-to-date.

There are clear risks. Weather and snow quality can significantly impact results. Further, spring visitation from non-pass guests was weaker than expected last ski season, waving a yellow flag. And while the CEO change could catalyze improvement, it also signals that the board wants faster progress. For income-oriented investors, the yield is tempting, but it comes with operational and macro sensitivity.

A reasonable valuation of 20 times earnings attempts to price in weak performance and key risks. If you believe Vail can stabilize visitation, be disciplined with its costs, and keep cash flow healthy, the current price is defensible for long-term investors who can tolerate seasonality. But more conservative buyers may prefer to wait for clearer evidence of stronger unit growth in passes or a better entry point. I am in the more cautious group. I'd love to own shares of Vail Resorts, but given the current context, I want a better price.

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Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vail Resorts. The Motley Fool has a disclosure policy.