The hotel industry is one of the more underappreciated income segments of the market thanks to low-yield big names like Hilton Worldwide Holdings Inc (NYSE:HLT) and Choice Hotels International Inc (NYSE:CHH) that operate and franchise hotels. Today, we’ll explore the dividend-rich side of hospitality via a trio of hotel REITs (real estate investment trusts) yielding up to 7% that invest in upper-echelon hotel and resort real estate.
The hotel industry is booming as America’s economic recovery continues. In 2016, hotel revenues across the board climbed more than 4% to hit nearly $200 billion — a record high. Meanwhile, STR and Tourism Economics forecast that U.S. hotels will continue chugging up the mountain over the next few years.
Upscale and luxury hotel REITs are particularly well-positioned to grab a chunk of the increasing wealth of the affluent class. And being REITs, they will dish the majority of it back to us as dividends.
Here are three hotel-focused REITs that pay sizable yields (up to 7%). Two of them have big upside potential while the third is proof-positive that even a bright industry has a few bad seeds.
Bargain Hotel REITs: Apple Hospitality REIT (APLE)
Apple Hospitality REIT (NYSE:APLE) owns a whopping 235 hotels spanning 33 states and containing 30,000 guestrooms. These properties feature mid-upscale brands across the Hilton and Marriott families — such as Hiltons, Hampton Inns, Embassy Suites, Fairfield Inns, Homewood Suites, Renaissance Hotels and more.
Apple Hospitality REIT is growing like a weed, with its total assets rocketing from $3.7 billion in 2015 to $5 billion last year. And analysts are expecting big things out of Apple Hospitality Trust going forward, including a 26% jump in net income to 96 cents per share in 2017.
That could mean a bump to the REIT’s monthly dividend, which was well-funded in 2016 by $1.76 per share in modified funds from operations — an important metric of REIT dividend safety.
Bargain Hotel REITs: Ryman Hospitality Properties (RHP)
Dividend Yield: 5.1%
Ryman Hospitality Properties, Inc. (REIT): (NYSE:RHP) does more than just typical hotels – it primarily invests in “group-oriented, destination hotel assets.” It’s actually a small base of four properties — “meeting-focused” resorts under the Gaylord Hotels brand, but those four properties combine for just over 7,800 rooms.
The company also owns a small group of “entertainment brands” that include The Grand Ole Opry — yes, that Grand Ole Opry — the Ryman Auditorium, and even an AM radio station, 650 AM WSM.
Ryman’s 80-cent payout represents just 66% of adjusted FFO of $1.22 from the first quarter, an 11% year-over-year improvement on that front. That means plenty of room for RHP to continue its robust dividend growth. Ryman has bolstered its dividend 60% since the company listed on the NYSE in 2012, and in the same time, shares have run 55% higher — double the Vanguard REIT Index Fund (NYSEARCA:VNQ).
Bargain Hotel REITs: Chesapeake Lodging Trust (CHSP)
Dividend Yield: 6.9%
Chesapeake Lodging Trust (NYSE:CHSP) has the highest dividend of the bunch at nearly 7%, but that’s about all CHSP really has to boast about at the moment.
CHSP targets the upper-upscale segment of the hotel market, and currently holds 22 properties for a total of nearly 6,700 rooms. It includes top city names such as the Hyatt Regency Boston, Le Meridien San Francisco and The Royal Palm-Miami South Beach.
The next couple of years could be difficult for Chesapeake Lodging Trust, which has scaled-back expectations for the next couple of years. Net income is expected to fall from 2016’s $1.13 per share to about 78 cents this year before rebounding, but only to $1.07, in 2018. Yes, CHSP will be able to maintain its 40-cent quarterly dividend with full-year forecast AFFO of $2.15 per share at the midpoint … but that’s a big step back from $2.39 per share in 2016.
Worse, CHSP hasn’t seen a dividend increase since 2015’s September payout.
Chesapeake Lodging Trust has a nice yield, but it’s hard to expect any gains from this dead-weight REIT. Steer clear.
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Chesapeake Lodging Trust is the perfect example of a retirement-busting stock. Yes, it’s easy to get drawn in by the nice yield, but if that’s all you’re getting — no dividend growth, and no business growth — then inflation will ultimately erode your income, and you’ll be stuck with an underperforming dud.
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