Host Hotels & Resorts, Inc. (HST), the largest lodging real estate investment trust (REIT), has recently increased its dividend payout by 20% to a quarterly payment of 6 cents per share or 24 cents on an annualized basis. The first quarter 2012 dividend is payable in cash on April 16, 2012 to shareholders of record as on March 30, 2012.
The current dividend hike is the fifth consecutive quarterly dividend increase for the company. 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. Regi.
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, and conducts selective capital improvements and expansions designed to improve operations.
Host Hotels also has a strong balance sheet, which provides the financial flexibility to aim 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 4.0% to 6.0% for the full year.
However, majority of Host Hotels’ properties are concentrated in the luxury and upper-upscale segments, which had been 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), one of the competitors of Host Hotels.