INDUSTRIES THAT HAVE BEEN KNOCKED DOWN. CAN THEY RECOVER?
April 26, 2020
The Coronavirus has hurt most companies, including the smallest mom & pops to the largest public companies. There are a few that have benefited (Amazon, Microsoft, Google, Facebook, etc), but this article will focus on one industry that has been knocked down hard – Hotels.
For income investors, the question is, can these fallen warriors get back up to fight another day? If so, tremendous opportunities could be waiting for those with foresight and courage to invest while there is blood in the streets.
Lets take a look at the hotel companies that have issued preferred stocks. Preferred stocks are safer than the common stock of their parent and could be the most conservative way to invest for both income and capital gains.
The table below lists all hotel stocks that have issued preferred stocks. There are 7 companies and 20 preferred stocks. Of the 7 hotel REITs, 4 have reduced or suspended the Q1 common dividend, including HT, INN, PEB and SOHO. For the time being, AHT, BHR and SHO have left the common dividend alone. Two of the companies have also suspended the Q1 dividend on their preferred stocks. These include HT and SOHO.
Now that the economy is gearing up to return to work in stages, will hotels be able to return to some semblance of normal business that allow them to pay the preferred dividends they are obligated to? If they can, investors who invest now could be locking in great yields and high income for years to come.
The fields that many focus on are payout ratios and debt. High debt is always a problem in times of trouble so look for companies with low debt. It is interesting to see that the 2 companies with the highest yields are also the companies with the highest debt (AHT and SOHO).
Dividend payout ratio compares the common stock dividend to the earnings that support the dividend; whereas the preferred dividend payout compares the preferred dividend to the earnings that support it. It is interesting that all of the companies in the table have fairly low payout ratios. It appears that they were preparing for a recession, but not a shutdown.
Being an optimistic person, it is hard to believe that most, or all of these companies will not be able to claw their way back to provide great accommodations and services to the public. In doing so, they will regain their financial well-being and ability to pay the preferred dividends in the normal course of business. All of these preferred stocks have risen a minimum of 100% from their lows just a few weeks ago as investors gain confidence in their future.
If you are interested in digging deeper, go to the I Prefer Income online program to check out more than 35 fields of demographic and financial metrics on these and the 650 preferred stocks and baby bonds. And don’t forget to read available articles from analysts as well as to visit the company websites to read their latest earnings reports.
The next beaten up industry that I will write about is mortgage REITs. Thanks for reading.