Month-to-month Dividend Inventory In Focus: Apple Hospitality REIT

Up to date on August twenty second, 2024 by Bob Ciura

Actual Property Funding Trusts, or REITs, are a core holding for a lot of earnings traders resulting from their excessive dividend yields.

The coronavirus pandemic was devastating for a lot of REITs. It particularly hit the hospitality trade laborious, together with REITs in that trade.

Apple Hospitality REIT Inc. (APLE) is a REIT that pays a month-to-month dividend. Month-to-month dividend shares pay shareholders 12 dividends per yr as a substitute of the extra typical quarterly funds.

We created an inventory of all month-to-month dividend shares (together with vital monetary metrics resembling dividend yields and payout ratios). You may obtain the spreadsheet by clicking on the hyperlink under:

Apple Hospitality has a 6.7% dividend yield, which represents a excessive yield. The excessive present yield, together with the month-to-month dividend payouts, make APLE an interesting inventory for earnings traders.

This text will focus on this REIT in higher element.

Enterprise Overview

Apple Hospitality is an organization that owns one of many largest and most numerous portfolios of upscale, rooms-focused motels in the USA.

As of June thirtieth, 2024, Apple Hospitality owned 224 motels encompassing over 30,000 visitor rooms, situated in 37 states and the District of Columbia.

APLE’s lodge portfolio consists of 100 Marriott-branded motels, 119 Hilton-branded motels and 5 Hyatt-branded motels.

Supply: Investor Presentation

On August fifth, APLE reported second-quarter outcomes. Adjusted funds-from-operation (FFO) rose 2% to $0.50 per share, in contrast with the identical quarter final yr. Comparable motels occupancy was 80% throughout the quarter.

APLE reported comparable motels adjusted lodge EBITDA of roughly $152 million, a 1.5% enchancment over second quarter 2023. Comparable motels RevPAR was $130, a rise of two.5% over second quarter 2023.

Comparable motels adjusted lodge EBITDA margin was roughly 39% for the quarter, down 50 foundation factors from the identical quarter final yr.

Progress Prospects

Because it first started reporting FFO/share in its annual stories (2011), Apple Hospitality initially generated very spectacular annualized FFO/share progress due to its rising scale (due largely to a merger in 2015), efficient and environment friendly enterprise mannequin, and powerful financial tailwinds in the USA throughout that interval.

Nonetheless, this progress charge has slowed dramatically not too long ago, largely because of the Covid-19 outbreak and an accompanying downturn within the lodge trade that was additional accelerated by the rise of firms like AirBnB.

Nonetheless, we count on progress to renew within the years forward. Particularly, we forecast 2.4% compound annual progress of FFO-per-share over the following 5 years.

Apple Hospitality’s progress prospects will principally come from a rise in rents. They had been additionally promoting less-profitable properties to accumulate extra helpful properties.

For instance, by means of the primary seven months of 2024, APLE bought three motels for a mixed gross sales value of roughly $41 million, and bought two motels for a mixed buy value of roughly $196 million.

Different progress drivers will come from long-term price financial savings. The corporate has an expense discount ratio goal of 0.80 – 0.90. That is completed by a capability to extend the cross-utilization of managers and associates.

Additionally, scaling to renegotiate vendor contracts and optimize labor administration software program already in place will help scale back total prices.

Lastly, inventory buybacks will enhance per-share FFO progress. By means of July, APLE repurchased 1.6 million of its frequent shares for an mixture buy value of roughly $23 million.

Extra areas and market diversification ought to assist the corporate proceed to develop its FFO for years to come back. This will even enable the corporate to begin growing its dividend.

Dividend Evaluation

The corporate doesn’t have a protracted dividend historical past because it grew to become public in 2015. The inventory pays its dividend month-to-month, which is enticing to many earnings traders. In 2016, the corporate did improve its annualized dividend considerably by 50%, from a $0.80 charge to a $1.20 charge.

Nonetheless, within the following years, the dividend stayed at that very same charge till 2020, when the COVID-19 pandemic compelled the corporate to chop its dividend and freeze it to a $0.20 charge for the yr.

In 2021, the corporate resumed the dividend. Beginning March 2022, the corporate is now paying its dividend month-to-month at $0.05 per share. APLE at present pays a $0.08 month-to-month dividend, which equates to $0.96 per share yearly.

The corporate’s wholesome steadiness sheet helps help the dividend. APLE has a few of the lowest debt-to-equity within the sector and loads of liquidity together with a well-laddered debt maturity profile.

With an anticipated 2024 dividend payout ratio of roughly 60% by way of FFO, we view the dividend as safe, though a steep recession would put the dividend in danger.

Apple doesn’t have a recorded historical past as a public belief throughout a typical recession, subsequently it’s laborious to evaluate itsrecession resilience, apart from to check it to lodge REITs.

Usually, throughout a recessionary interval, lodge REITs expertise vital losses of earnings. Subsequently, Apple is probably going not very recession resistant.

Nonetheless, its focus in sturdy model names, wonderful areas, sturdy steadiness sheet, franchising mannequin, and emphasis on worth ought to allow it to outperform its friends in a recession.

Last Ideas

Apple Hospitality is among the strongest gamers within the lodge sector resulting from its sturdy model energy, wholesome steadiness sheet, and high-quality belongings. The corporate has the potential to begin growing its dividend now that the COVID-19 pandemic is up to now.

The dividend payout ratio is comparatively low, and AFFO per share is predicted to develop over the following 5 years. Total, we expect that it makes for a lovely purchase proper now.

Don’t miss the sources under for extra month-to-month dividend inventory investing analysis.

And see the sources under for extra compelling funding concepts for dividend progress shares and/or high-yield funding securities.