Host Hotels & Resorts, Inc. (HST - Analyst Report), the largest lodging real estate investment trust (REIT), has recently increased its dividend payout by 80% year over year to a quarterly payment of 9 cents per share or 36 cents on an annualized basis. The fourth quarter 2012 dividend is payable on January 15, 2013 to shareholders of record as on December 31, 2012.
The current dividend hike is the eighth consecutive quarterly dividend increase for the company. Based on the closing price of $14.69 as on November 30, 2012, the proposed dividend affirms a yield of 2.45%. A steady dividend payout facilitates the long-term strategy of Host Hotels to provide attractive risk-adjusted returns to its stockholders.
Investors looking for high dividend yields are increasingly favoring REITs like Host Hotels. Solid dividend payouts are arguably the biggest enticement for REIT investors as the U.S. law requires REITs to distribute 90% of their annual taxable income in the form of dividends to shareholders.
Based in Bethesda, Maryland, Host Hotels is one of the largest owners of luxury and upper-upscale hotels, primarily operated under premium brand, such as Marriott, Westin, Sheraton, Ritz-Carlton, Hyatt, W, Four Seasons, and St. Regis.
The company maximizes the value of its existing portfolio through aggressive asset management, and works diligently with the managers of its hotels to reduce operating costs and increase revenues. At the same time, Host Hotels conducts selective capital improvement and expansions designed to improve operations.
Host Hotels has a strong balance sheet, which provides financial flexibility to aim for high-yielding acquisitions, high ROI (return on investments) capital projects, steady dividend payouts, and share buybacks. The company anticipates the gradual revival of the overall economy to boost its operating results in 2012, with comparable hotel RevPAR (revenue per available room) expected to increase in the range of 6.25% to 7.0% for the full year.
However, the majority of Host Hotels’ properties are concentrated in the luxury and upper-upscale segments, the weakest performing segments during the economic downturn. If this trend reoccurs in the future, the bottom line of the company is likely to be affected, reducing its operating margins.
We maintain our Neutral recommendation on Host Hotels, which presently has a Zacks #3 Rank that translates into a short-term Hold rating. We also have a Neutral recommendation and a Zacks #3 Rank for FelCor Lodging Trust Inc (FCH - Snapshot Report), one of the competitors of Host Hotels.