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Hotel REITs offer solid dividends and diversification, but many investors forget that not all REITs are created equal. Let’s look at best REITs to benefit as the travel industry revs up.
The travel boom is in full force, folks.
The stock of nearly every major hotelier was higher (most up 5% or more) last week and they are holding their gains. There are still a few underrated opportunities in the travel space that investors can profit from, such as Starwood Hotels (NYSE: HOT).
For income-seeking investors, there are few options. However, investors willing to turn their focus to the REIT space will find some attractive income opportunities.
That’s right. Investors can use REITs to capitalize on the travel boom, while also collecting a nice dividend check.
So why hotels?
Room demand is on the rise, as is room pricing. Part of this is the strengthening economy, but the other part is the lack of hotel supply. The financial crisis led to a slowdown in hotel building, which means the remaining players now have impressive pricing power.
And although airlines are saving millions of dollars thanks to low fuel prices, airline ticket prices are still high. Assuming airfares finally start coming down, that will be even more incentive for consumers to boost their travel.
Meanwhile, REITs are great ways to diversify. For one, they have managed to trade rather independently of the broader market. Over the last three years, the beta for the Vanguard REIT ETF (NYSEArca: VNQ) is just 0.5. That means that for every $1 fall in the S&P 500, the Vanguard REIT ETF has fallen only $0.50.
Secondly, REITs are great ways to diversify across various hotel brands. With the hotel industry bustling and on track for the best year ever, I think the hotel REITs are worth a closer look. So here are the top two income plays in the hotel space:
Income Opportunity in Hotels No. 1: Host Hotels and Resorts (NYSE: HST)
Host Hotels, with a near $18 billion market cap, is one of the biggest players in the Hotel REIT space. It focuses on higher-end and luxury hotels. And with more money to spend, look for travelers to trade up when making hotel choices.
This real estate investment trust owns a portfolio of over 100 luxury hotels. Some of its most popular brands include Sheraton, Four Seasons, Westin and Ritz-Carlton. It’s also worth noting that Host Hotels has a presence in Europe. It has an interest in a joint venture that owns almost 20 hotels across Europe.
Let us not forget about its 3.5% dividend yield too. Host Hotels has upped its dividend for four straight years now.
Income Opportunity in Hotels No. 2: LaSalle Hotel Properties (NYSE: LHO)
LaSalle is about a quarter of the size of Host Hotels in terms of market cap, but its dividend yield is a bit higher at 3.7%. LaSalle has managed to up its dividend for three straight years.
This REIT owns nearly 50 hotels across nine states. Its focus is on full-service hotels in urban areas. Specifically, LaSalle likes to find hotels that need aggressive strategies, like renovations or new management.
With a relatively strong balance sheet, LaSalle has the opportunity to raise more debt to expand via acquisitions — a strategy it’s been implementing nicely of late. It bought several hotels in San Francisco and D.C. just over a year ago in an effort to further penetrate bustling urban markets.
In closing, REITs are still great ways to collect income. And with the hotel industry in full-blown boom mode, now looks to be a good time to dig deeper into REITs that own hotels.
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