The accommodation industry was one of the hardest hit by the COVID-19 pandemic last year, and this continued into 2021. Despite these unrest, Wyndham Hotels & Resorts‘ (NYSE: WH) the stock has gained 3% over the past 12 months, outperforming S&P 500 hotels, restaurants and entertainmentThe performance is essentially unchanged.
Are stocks about to continue to overtake the sector? It’s time to take a look inside the gate to determine if you should invest in Wyndham.
Wyndham primarily franchises its properties, receiving a percentage of room revenue, limiting its exposure to rising hotel operating costs and major capital expenditures. Its accommodations are geared towards economy and mid-range low-cost categories, with both accounting for 78% of its rooms. These are brands like Super 8, Days Inn, Howard Johnson, La Quinta and Ramada.
In addition, most of its customers, 70%, are leisure travelers. Of the remaining portion, the overwhelming majority is made up of small businesses such as contractors, truckers and emergency crew employees, not large corporations.
The latter tend to outperform higher priced hotels during tough economic times. Indeed, management said its budget and mid-range properties outperform high-end hotels in the industry.
Wyndham is not immune from the pandemic, of course. In the fourth quarter, revenue fell 40% to $ 296 million.
While business travel may not fully recover for a while, if at all, as companies continue to hold virtual meetings, people will resume their vacations. No one knows when this will happen, but governments and businesses are distributing coronavirus vaccines at a faster rate, which will hopefully soon make increased travel a reality. When that happens, Wyndham, with its affordable options, is in a good position to take advantage of it.
Dividends are on the rise
Last year, Wyndham’s board of directors reduced the quarterly dividend from 75% to $ 0.08. While painful for shareholders, this was understandable as COVID-19 spread, forcing governments to issue stay-at-home orders and travel restrictions.
On the plus side, Wyndham continued to pay dividends, even at a reduced rate, while others in the industry including Hilton Hotels and Marriott International, have completely suspended their dividends. These large hotel chains have not yet reinstated their payments.
Better yet, unlike the others, Wyndham saw fit to increase its payout, recently doubling it to $ 0.16. It’s a bold step when there is so much uncertainty. Indeed, other companies in all sectors risk reducing their payments. But Wyndham’s board wouldn’t order a raise unless they were confident in the future and in their ability to maintain the new rate.
Stay or go?
It is always bewildering to invest in a company whose results fluctuate with the economy, especially when it is going through tough times. However, Wyndham hotels attract more budget-conscious travelers looking for affordable vacation options. On top of that, you can collect your dividend payments while waiting for the stock to go up. For patient investors willing to take some risk as personal travel picks up soon, this is a good opportunity to acquire Wyndham shares.
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