Stock Analysis

Do Investors Have Good Reason To Be Wary Of Hyatt Hotels Corporation's (NYSE:H) 0.9% Dividend Yield?

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NYSE:H
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Today we'll take a closer look at Hyatt Hotels Corporation (NYSE:H) from a dividend investor's perspective. Owning a strong business and reinvesting the dividends is widely seen as an attractive way of growing your wealth. If you are hoping to live on your dividends, it's important to be more stringent with your investments than the average punter. Regular readers know we like to apply the same approach to each dividend stock, and we hope you'll find our analysis useful.

With only a three-year payment history, and a 0.9% yield, investors probably think Hyatt Hotels is not much of a dividend stock. A low dividend might not be a bad thing, if the company is reinvesting heavily and growing its sales and profits. The company also bought back stock during the year, equivalent to approximately 0.8% of the company's market capitalisation at the time. Some simple research can reduce the risk of buying Hyatt Hotels for its dividend - read on to learn more.

Explore this interactive chart for our latest analysis on Hyatt Hotels!

historic-dividend
NYSE:H Historic Dividend April 13th 2021

Payout ratios

Companies (usually) pay dividends out of their earnings. If a company is paying more than it earns, the dividend might have to be cut. As a result, we should always investigate whether a company can afford its dividend, measured as a percentage of a company's net income after tax. Although Hyatt Hotels pays a dividend, it was loss-making during the past year. When a company recently reported a loss, we should investigate if its cash flows covered the dividend.

Last year, Hyatt Hotels paid a dividend while reporting negative free cash flow. While there may be an explanation, we think this behaviour is generally not sustainable.

We update our data on Hyatt Hotels every 24 hours, so you can always get our latest analysis of its financial health, here.

Dividend Volatility

Before buying a stock for its income, we want to see if the dividends have been stable in the past, and if the company has a track record of maintaining its dividend. This company's dividend has been unstable, and with a relatively short history, we think it's a little soon to draw strong conclusions about its long term dividend potential. During the past three-year period, the first annual payment was US$0.6 in 2018, compared to US$0.8 last year. This works out to be a compound annual growth rate (CAGR) of approximately 10% a year over that time. The dividends haven't grown at precisely 10% every year, but this is a useful way to average out the historical rate of growth.

It's not great to see that the payment has been cut in the past. We're generally more wary of companies that have cut their dividend before, as they tend to perform worse in an economic downturn.

Dividend Growth Potential

With a relatively unstable dividend, it's even more important to evaluate if earnings per share (EPS) are growing - it's not worth taking the risk on a dividend getting cut, unless you might be rewarded with larger dividends in future. Hyatt Hotels' EPS are effectively flat over the past five years. Over the long term, steady earnings per share is a risk as the value of the dividends can be reduced by inflation. Hyatt Hotels is paying out less than half of its earnings, which we like. Earnings per share growth have grown slowly, which is not great, but if the retained earnings can be reinvested effectively, future growth may be stronger.

Conclusion

When we look at a dividend stock, we need to form a judgement on whether the dividend will grow, if the company is able to maintain it in a wide range of economic circumstances, and if the dividend payout is sustainable. Hyatt Hotels' dividend is not well covered by free cash flow, plus it paid a dividend while being unprofitable. Unfortunately, the company has not been able to generate earnings growth, and cut its dividend at least once in the past. In this analysis, Hyatt Hotels doesn't shape up too well as a dividend stock. We'd find it hard to look past the flaws, and would not be inclined to think of it as a reliable dividend-payer.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 2 warning signs for Hyatt Hotels (1 is significant!) that you should be aware of before investing.

We have also put together a list of global stocks with a market capitalisation above $1bn and yielding more 3%.

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What are the risks and opportunities for Hyatt Hotels?

Hyatt Hotels Corporation operates as a hospitality company in the United States and internationally.

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Rewards

  • Earnings are forecast to grow 21.99% per year

  • Became profitable this year

Risks

  • Interest payments are not well covered by earnings

  • Significant insider selling over the past 3 months

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