3 Bargain Hotel REITs Paying up to 7%

Hotels aren't usually a high-dividend area of the market, but when you combine lodging with REITs, you find income

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.

Source: Shutterstock

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)

Dividend: 6.3%

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)

Bargain Hotel REITs: Ryman Hospitality Properties (RHP)
Source: Shutterstock

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)

Bargain Hotel REITs: Chesapeake Lodging Trust (CHSP)
Source: Shutterstock

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.

The Retirement Portfolio You NEVER Have to Touch!

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.

Yes, you need big headline yields. But if you hitch your wagon to a high-yield loser, that 8% annual yield can turn into a 4% annual return … or 2%, or 0%, or worse. Those kinds of performances can literally set back your retirement timetable by years!

If you want the retirement you truly deserve, you need a multi-tooled portfolio that not only offers big headline yield, but also dividend growth and the potential for capital gains, too! You can find these kinds of “triple threat” stocks in my “No Withdrawal” retirement portfolio.


Article printed from InvestorPlace Media, https://investorplace.com/2017/05/3-bargain-hotel-reits-paying-up-to-7-percent/.

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