Vail Stock Has Been Hammered. Is Its 6.7% Dividend Yield Now Too Good to Resist?

Core Viewpoint - Vail Resorts' stock presents an attractive dividend yield of approximately 6.7%, which is significantly higher than short-term Treasury rates, making it a potential investment opportunity despite recent performance challenges [1][3]. Financial Performance - Vail's revenue for the first quarter of fiscal 2026 was $271 million, reflecting a year-over-year increase of only 4.1% [5]. - North American pass sales decreased by 2% in units and increased by just 3% in dollar sales year over year, indicating a lack of strong demand [5]. - A 7% price increase contributed to the revenue growth, but the overall sales performance remains unimpressive [6]. Dividend and Cash Flow - The company's trailing-12-month free cash flow stands at $352.2 million, which comfortably covers its trailing-12-month dividend payments of $324.8 million, suggesting financial stability to maintain the dividend [8][9]. - Management has indicated that maintaining the current dividend levels is a priority for fiscal 2026, alongside share repurchases totaling $25 million in fiscal Q1 [9]. Valuation and Risks - Despite a 29% decline in stock price over the past year, Vail's shares are not considered cheap, with a forward price-to-earnings ratio of 18.3 and a price-to-free cash flow ratio of 13.5 [10]. - The company has a net debt of approximately $2.6 billion, which raises concerns given its free cash flow generation of around $350 million [11]. - There is a potential risk of dividend reduction or suspension in the future, although management has committed to the dividend for the current fiscal year [12]. Market Outlook - CEO Rob Katz noted early momentum in initiatives aimed at increasing visitation for the 2025/2026 ski season, but adverse weather conditions at key resorts may dampen this optimism [7]. - Positive changes in weather and effective marketing strategies could enhance business performance and reduce the perceived risk associated with the dividend [13]. - Overall, the current risk-reward profile for Vail stock is viewed as unattractive, with a suggestion that a further decline in stock price could prompt a reevaluation of investment decisions [14].