The Simply Investing Dividend Podcast
The Simply Investing Dividend Podcast
EP76: Evaluating a Hotel Dividend Stock, 161% return
In this episode, we look at the world’s largest publicly traded lodging REIT. Does a return of over 161% make this dividend stock worthy of consideration?
I also cover the following topics in this episode:
- Our stock under review (HST)
- Our 12 Rules and 10 Criteria
- Applying the 12 Rules of Simply Investing
- Historical rate of return (161% vs 961%)
- Conclusion
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In this episode we look at the world's largest publicly traded lodging, reit. Does a return of over 161% make this dividend stock worthy of consideration? Stay tuned as I give you a behind-the-scenes look at my stock review process. Hi, my name is Kanwal Sarai and welcome to the Simply Investing Dividend Podcast. In this episode, we're going to cover the following four topics. We'll start with our stock, our dividend stock under review, so I'm going to introduce the stock to you and give you some information about the company as well. In the next section, we are going to cover the 12 rules of Simply Investing and the 10 SI criteria. Then I'm going to show you how I apply the 12 rules of Simply Investing to this company that we're reviewing in today's episode, and then we'll look at the historical rate of return and the conclusion at the end of this episode. So let's get started with our topic number one, our stock under review. So the stock that we are going to be reviewing in this episode is Host Hotels and Resorts, and they go by the stock ticker symbol of HST, and it is a company that is traded in the US. This is coming to us this episode as a result of an audience question and the question I received by email recently was is the host hotel and resorts worth considering as an investment? And the person that emailed me had done some research already on the stock. They felt that it was a good stock but they weren't sure and they wanted to know is it worth looking into as an investment, as a dividend stock? So that's what we're going to look at in today's episode and so, like I mentioned, the company we're going to look at today is Host Hotels and Resorts.
Speaker 1:Now this quote is coming directly from the company's website. You can see the website up on the screen here and the company says, I quote we are the world's largest publicly traded lodging REIT, with a geographically diverse portfolio of luxury and upper scale hotels across the United States. The company owns a total of 77 hotels and resorts with a combined capacity of 42,000 rooms, and they own a number of hotels under a lot of brand names that you will recognize. So the majority brands are Marriott, hyatt, four Seasons and the Westin and a couple of other brands, but I just wanted to list off the major four brands here. The company has a total of 163 employees. Company has a total of 163 employees. They're based in the US and they have a market cap, as of this recording, of a little over $14.4 billion. The current share price, again as of this recording, is $20.30 and the current dividend yield is 3.5%. So now let's go on to our next section.
Speaker 1:In this episode, I'm going to tell you what the 12 rules are, the 12 rules of Simply Investing, what is the 10 criteria, and then, in the following section, we are going to apply those rules and the criteria to the company we're looking at today. So you can see the 12 rules up on the screen. If you've been watching other episodes of our podcast, you might already be familiar with the 12 rules. I'm gonna go through those fairly quickly right now and then we'll jump into more details as we go forward. So rule number one, the simply investing rule, is do you understand how the company is making money? If not, skip it, move on to something else, right? So these 12 rules is basically your checklist. You want to make sure, before you invest in any company, that it passes all of the 12 rules of simply investing.
Speaker 1:Ok, so let's move on to rule number two 20 years from now, will people still need its product and services? Rule number three does the company have a low cost competitive advantage. Rule number four is the company recession proof. And rule number five it's in two parts and what we look at is to see if the company is profitable, and we're going to go into more detail in just a minute here. Rule number six does the company grow its dividend? Rule number seven can the company afford to pay the dividend? Rule number eight is the debt less than 70%. Rule number nine we want to avoid any company with a recent dividend cut. Rule number 10, does the company buy back its own shares? Rule number 11, is the stock priced low? And that's in three parts and we're going to cover those three parts in just a few minutes. And rule number 12, keep your emotions out of investing. Now.
Speaker 1:To help speed up the process, I'm going to jump in to the Simply Investing platform in just a few minutes. The Simply Investing platform applies rules number 5 to 11 to every stock in the US and in Canada. So there's about over 6,000 stocks and the platform applies rules number 5 to rule number 11 to over 6,000 stocks every single day and it does it automatically. It is a web application that you log into. I'm going to show you what it looks like when I log into it and it's going to help speed up the process. So for us, it's going to cover rules number five to rule number eleven. So you can see those are highlighted in bold on the screen right now. Now, let's not forget, you are still responsible for rules number 1 to 4 and rule number 12. Like I said at the beginning of this episode, I'm going to take you through all of the 12 rules very shortly.
Speaker 1:Now let's cover the rule 5 to 11 first, because the platform does that for us, so let's look at those first. So in a little bit more detail, like I said, rule number five was divided into two parts of 5A and B, so I'm going to go through these in a little bit more detail. So rule number 5A states that the average EPS growth over the last 20 years must be 8% or more. If not, the company fails rule number 5A and we skip it and move on to something else. Rule number 5B we want to see at least 8 increases in earnings, eps increases in the last 20 years 8 or more. Rule number 6, the average dividend growth must be 8% or more. Rule number seven the payout ratio must be 75% or less. Rule number eight the debt must be 70% or less. Rule number nine if the company has had a recent dividend cut, we're going to skip it. So that's what we check for in rule number nine.
Speaker 1:Rule number 10, does the company buy back its own shares. And rule number 11, as I mentioned before, is in three parts. So rule 11A looks at the PE ratio and we want to make sure that the PE ratio is 25 or less. Rule number 11B is to compare the current dividend yield to the company's average 20-year dividend yield and for a stock to be considered undervalued or price low, the current yield must be higher than its average 20-year yield. If you want more information on that, on how we determine this and some real-life examples, I encourage you to go back and watch episode 1 in our dividend podcast, where we cover rule number 11b in a lot more detail. Rule number 11c is to look at the pb ratio, the price to book ratio, and it must be three or less.
Speaker 1:So if you look at the screen here, like I said, rules number five to 11. Now, rule number five is in two parts, 11 is in three parts. So if you count all of the rules here, there's actually we call them criteria there's the 10 simply investing criteria, and that's what you see on the screen here, and so the simply investing platform will apply each of these 10 SI criteria to every stock in the US and in Canada every single day. So the platform then will give you automatically, tell you, what the SI score is. So if a company passes only one criteria on the screen, it's going to get one out of 10. If it passes two, it'll get two out of 10. What we want to look for is a company going to get one out of 10. If it passes two, it'll get two out of 10. What we want to look for is a company that gets a 10 out of 10, which means it passes all of the 10 SI criteria that you see on the screen here. So does our company today, the one we're looking at, hst right, the host hotels and resorts does it get a 10 out of 10? Does it get a 9 out of 10? We're going to find out in just a couple of minutes, as we apply not only the 10 SI criteria but all of the 12 rules of Simply Investing. So let's jump into that right now, into our next section.
Speaker 1:So, like I mentioned, rules number five to rule number 11 are covered by the Simply Investing platform. So we're going to jump into the Simply Investing platform right now and then we're going to take a look at the SI criteria. The score Does the company get 10 out of 10, 9 out of 10 or 8? We're going to find out right now. To get 10 out of 10, 9 out of 10 or 8? We're going to find out right now. So you can see on the screen right now.
Speaker 1:I'm logged into the Simply Investing platform. I've already done a search for our company, host Hotels and Resorts, and you can see it up on the screen right here. You can see the stock symbol, you can see the current stock price and some information on the company itself. What we're going to do is scroll down to our table right here. I'm going to go ahead and hide some of the columns that we don't really need for this episode here, so that'll just make it a little easier because there's a lot of data in each of these tables. But if I hide and just focus on the ones we're looking at, let's go through those right now.
Speaker 1:So, like I said before, the Simply Investing platform covers the rules number 5 to 11. So let's take a look here. Rule number 5A it's right here. It says average EPS growth over the last 20 years. Now if you forget what the rule was, you can always hover over the question mark here. So it says EPS growth of 8% or more, and we can see that the company has EPS growth of 105%. So it certainly passes rule number 5A. Let's move on to rule number 5b. It says number of EPS increases in the last 20 years and we're looking for eight or more increases in the EPS earnings per share, and we can see that the company has had 11 increases in the last 20 years. So again, it passes rule number 5b.
Speaker 1:Let's move on to rule number six average dividend growth over the last 20 years. And we want to see 8% or more in order for a company to pass rule number 6. So you can see it gets 22.9%. So of course it passes rule number 6. Rule number 7 is the payout ratio. It's got to be 75% or less, and you can see that it is 69.23. So that's very good and the company passes rule number seven. Let's move on to rule number eight. We want to see the debt, the long-term debt to equity ratio of 70% or less, and the company has currently a long-term debt to equity ratio of 51%, so we're good. It passes rule number eight. Let's move on to rule number nine.
Speaker 1:This one is checking to make sure that there has not been a dividend cut recently. So what we do here is we look at the current dividend and the previous year dividend, and so we can see the dividend has actually gone up by 33% from the previous year, so that's good. So there has been no dividend cut recently. Share buyback so of course this company is doing share buybacks. Again, we look at the number of outstanding shares today compared to the year before, and if we have less outstanding shares today than the year before, then we know that the company has done some type of share buyback. So it passes rule number 10.
Speaker 1:The rule number 11A is to look at the PE ratio, and it's got to be 25 or less, and we can see that it's sitting right now at 19.54. So that's good. Rule number 11b was to compare the current yield. We want to make sure it's higher than the average 20-year yield, and it is. So we identify the stock as being undervalued or priced low. So the company passes rule number 11b as well. Rule number 11C is to look at the PB ratio and we want to make sure it's three or less, and you can see that it's currently sitting at 1.97. So that is very good. So the company passes rule number 11C as well. And then, finally, you can see the SI criteria, which is the 10 criteria we just went through right Rules number 5 to 11. Remember, rule number 5 is in two parts. Rule number 11 is in three parts. So we have a total of 10 SI criteria and you can see that the company gets a 10 out of 10 because it passes all of the 10 criteria that you can see on the screen right now. Now there's a couple of things we want to check while we're here. Anyway, just because a company passes all of the criteria and gets a 10 out of 10, it still may or may not be a high quality company that you may want to invest in. So let's look at some of those things.
Speaker 1:So by default here you can see we're looking at the average stock price. I've set the the length to max, so our data goes back to 1999. So since then you can see that the average stock price has been pretty much hasn't changed, right, if I was to draw like a straight line here, right? What we want to see is a slope that's increasing over time, and it really hasn't. You can see that the stock price is around $20 today and that's where it was last year and even in 2013, 2017, 2005, 2007, 2017, 2005, 2007,. It's still hovering around $20, right or plus or minus $2. So between $18 to $22. And the price has not gone anywhere outside of that range. So this doesn't look promising. But let's continue, right, we're going to continue.
Speaker 1:So the other thing I want to show you is the. Let's look at the dividends per share. So now you can see that the dividends per share since 1999, we see a couple of times where the company has cut the dividend to zero, right? So this is not a very good graph. You can see that the the company cuts the dividend, then they increase the dividend, then they drop the dividend, then they increase it and then they drop it again. So this is very random. It doesn't give us a high level of confidence as to what's going to happen to the dividend in the future.
Speaker 1:Now I'm going to give you an example here. This is a completely different company, but it is a dividend stock, but it's a different industry, different sector, but I just want to illustrate to you what we look for. So I'm going to switch over to this tab, and this is Texas Instruments. And, by the way, you can see the average stock price. So this graph looks a lot better than what we just saw before for the average stock price. So the stock price has been steadily increasing over the long term. But now let's take a look at dividend per share over the long term.
Speaker 1:But now let's take a look at dividend per share. So this is a nice graph. Right Since 1999, you can see that the dividend per share has been growing. So this is a nice graph. This is what we want to see. We want to see a steady increase in the dividend over time. But we're not seeing that with our company host hotels. So again, let's keep going. It doesn't look promising, but let's keep going.
Speaker 1:So now we're going to look at one more thing, which is the EPS earnings per share. So here you can see the earnings per share. There's a couple of times where it goes negative, which means the company lost money in 2002, 2003, 2004, 2009. So you can see a couple of places where it lost money. Again, what we want to see is a nice slope where the earnings are growing over time, and here they're not.
Speaker 1:Let's jump over to Texas Instruments again. I'm going to look at the same type of graph earnings per share and you can see. Of course you know there's dips where earnings go down, but then it comes back up again Overall, generally over the long term. If you look at the slope of this line, it's going up over time, right? So this is good because it gives us some degree of confidence that the company will continue to grow its earnings over time, because they've done so since 1999. But when we go back to host hotels, but when we go back to host hotels, this graph, this line, doesn't tell us much. It's completely random. So I don't know. Next year are the earnings going to go up, are they going to go down? We don't know. And the same thing with the dividend per share. Is the company going to pay a dividend next year? We don't know. Is the dividend going to go up, it's going to go down? We don't know. Is the dividend going to go up, it's going to go down? We don't know. That's hard to predict. Whereas if we go back to Texas Instruments, we look at dividends per share, we can have some degree of confidence that the company will at least pay us a dividend next year and hopefully grow the dividend as well, because it is on an incline. Because it is on an incline Now that we've checked the 10 SI criteria score in the platform, we can see that the company gets a 10 out of 10.
Speaker 1:We don't want to forget about rules number 1 to 4 and rule number 12. So let's look at those right now. So rule number 1, do you understand how the company is making money? And in this case we do. The company is called Host Hotels and Resorts. They're making money by renting out rooms in their hotel and resorts, and that's how the company earns revenue. On rule number two 20 years from now will people still need its product and services? And I'm going to say yes, hotels have been around for a very long time. Same thing with resorts. And 20 years from now, of course, I think people will still be going on vacation, traveling to places, visiting family and friends, and so they will need places to stay. So hotels sure would still be in demand of some type in the next 20 years. So I'm going to say, for now, the company passes rule number one passes rule number two.
Speaker 1:Rule number three does the company have a low cost competitive advantage? So this is a tricky one because typically the companies that pass rule number three are absolute giants in their industry, and these are blue chip stocks, something like Coca-Cola, walmart, mcdonald's. These are very, very large companies, well-established, and they have household names. Now, I know this company here. They do have hotels under the Marriott brand, under the Westin brand and a couple of other names that you might be familiar with. So in a way, sure that's a good competitive advantage. In a way, sure that's a good competitive advantage. But in terms of size, the company is fairly small. Right, we looked at it earlier 163 employees and a market cap of $14 billion. There are companies out there with a market cap of hundreds of billions of dollars and 30, 40, 50, 100,000 employees or more, right, so much much larger companies that can take advantage of economies of scale. So I'm kind of on the fence right now. I'm not sure if the company passes rule number three, but I'm going to give the company the benefit of the doubt and for now we'll say it passes rule number three.
Speaker 1:Three, and let's move on to rule number four. Is the company recession proof and in my opinion, it's not, because we've seen what happened during COVID to hotels. We saw what happened during 9-11, when people stopped traveling, getting on planes, staying at hotels, and so when there is a recession or there's a chance you may lose your job, you're probably not going to travel overseas or on expensive trips and you're not going to be staying in hotels right, and you're not going to be staying in hotels, right, and we saw that especially during COVID-19, when a lot of people stopped traveling, couldn't travel, and even for business travel, a lot of the meetings were being held online. So, in my opinion, the company fails rule number four and I would say that it is not recession proof. Now rules number five to 11, we've already covered in the Simply Investing platform, so I'm going to move on. We saw that it passed all of those rules, and rule number 12, of course, is to keep your emotions out of investing, and we talk a lot about this in the Simply Investing course and how to actually accomplish that. Okay, so to finish off this section here, in this episode, the company passes 11 out of the 12 Simply Investing rules, right, as we saw, it did not pass rule number four, where we're looking for companies that are recession proof Now.
Speaker 1:Is the company still worth considering? Maybe, maybe not. We're going to take a look at the historical rate of return. Maybe that will help us make our decision. So for this I'm going to go back to 2004 and to 2024. So we're going to cover a 20-year period. So we want to cover a long period of time because it takes into consideration the ups and downs of the stock market. So when we have a bull market or we have a bear market, right if the market's down, the market's up, or there's a recession or a downturn, in the last 20 years we've experienced all of those things. So any company that can survive those last 20 years and come out at the top might be worth considering. So we're going to look at the last 20 years and see how well our company, host Hotel and Resorts, has done so.
Speaker 1:In this example I'm going to use an investment of $10,000. So let's say, in 2004, you invested $10,000 into this company, host Hotel and Resorts, and, of course, the time frame is 20 years. The ending value so what we're doing is we're looking at the stock price today as of this recording, plus we're adding up all of the dividends received over the last 20 years, the investment would be worth today over $26,000. So that's pretty good. The rate of return is 161%. So how do we know if this is a good return? Is it a decent return? Is it mediocre? Is it not that great? Because just looking at the number seems like it's fine, but how do we know if it's good or bad? So what I'm going to do here and again is just to illustrate this example. I'm going to compare it to another company and again, this company is not in the same industry, it's not in the same sector, but it is a dividend stock, and I just want to illustrate to you of what's possible when it comes to investing in dividend stocks. So it's going to be the same company we looked at in the Simply Investing platform, which was Texas Instruments, right? So I'm going to show that up on the screen in just a second.
Speaker 1:There was one other number I wanted to show you here, which was the dividend yield on cost, which is the dividend yield based on the original purchase price back in 2004 for host hotels and resorts, and you can see that today it is 6.18 percent. So that is the return on your investment while you hold on to these shares. So if you still hold on to them, you can expect this year to earn 6.18% of $10,000, because it's based on your original investment in dividends. And remember, dividends are deposited automatically into your trading account as cash, and so you can spend that money if you wish, or you can reinvest it. Okay.
Speaker 1:So now that we have all the data for host hotels and resorts, I want to compare it to Texas Instruments Again. I know it's not in the same industry. It's just to illustrate what's possible with dividend stocks. Illustrate what's possible with dividend stocks. So, texas Instruments same amount $10,000 invested back in 2004. So the same 20 year period that investment would be worth today over $106,000. You can see the numbers up on the screen here. That is a rate of return of 961%, versus host hotels and resorts, which returned us 161%. So that is a huge difference in the rate of return. And more important to us as dividend investors is the dividend yield on cost. Texas Instruments today, in this example, would provide you with over 26% annually in dividends, and that's 26% of $10,000, and and dividends would be returned to you just for holding on to those shares. So if we were to just to look at the numbers on the screen here. Texas Instruments would have been a better investment than host hotels and resorts.
Speaker 1:So why are we looking at the past? The reason is we cannot predict the future. We don't know how these companies are going to do in the future. We don't know if they're going to pay a dividend. Predict the future we don't know how these companies are going to do in the future. We don't know if they're going to pay a dividend in the future. So what we do is we can look at the historical rate of return over the last 20 years, which is a long period of time, and that can give us some level of confidence as to what to expect in the next 5, 10, 15, or 20 years of holding on to these companies. So what is the conclusion here? So the conclusion is a couple of things.
Speaker 1:I want to go through them all with you right now. If you are a brand new dividend investor and you're looking to get started building a dividend stock portfolio you don't own any other stocks building a dividend stock portfolio, you don't own any other stocks then in this case, I would skip host hotels and resorts and move on to something else. Why? Because the company passes 11 out of the 12 rules of simply investing. And remember what I said at the beginning of the video we only want to invest in companies when they pass all of the 12 rules. If there's even one failure, we skip it, move on to something else. Why do we do that? Because we want to minimize our risk to our hard-earned money. So for any new investors, I would skip it. That's what, in my opinion, that's what I would do Now.
Speaker 1:When we took a look at the earnings per share growth, you could see that it was erratic. Since 1999, the earnings have been erratic. They're not going up steadily like we like to see, so that's kind of that's a negative right. I know the company passed all of the 10 SI criteria and got a 10 out of 10. But still, if I look at the earnings EPS graph, it's erratic. So to me that's a bit of a minus right Sort of a yellow flag there.
Speaker 1:If we look at the dividend growth, also it was erratic, right. The company had not paid a dividend for a couple of years. Then it started up again, then it decreased the dividend, then it paid another dividend. So it was just random. And again we want to see a nice steady graph where it just goes up, and this company didn't do that right, so that's a negative there too.
Speaker 1:Then, when we took a look at the historical rate of return, 161% return over 20 years is not that great compared to Texas Instruments, which had a return of over 961% during the same period. So the rate of return not that great. And also the company is small. They've got 163 employees, cap of 14 billion. Like I said, generally when we look at companies, they're very large in the hundreds of billions of dollars market cap and 30, 40, 50, 000, 100, 000 employees more, and so they are much, much, much larger companies and especially when you're starting to invest in dividend investing, we want to start off with the large, well-established blue chip companies first and foremost, before you start looking at other smaller companies in the space.
Speaker 1:Now, if you already have a well-diversified dividend portfolio, you've got a lot of experience, you've been collecting dividends for many, many, many years and you are now looking to diversify your portfolio and you don't have any hotels or REITs in your portfolio, then you may consider this company that we're looking at today and even then I would suggest, if you don't have any other hotel stocks or don't have any other REITs again, I would suggest that you look at the bigger companies first and if they're not passing the 12 rules of Simply Investing, then the best thing to do is to wait. There is no harm in waiting. We always want to pick up high quality stocks, and you can only pick up high quality stocks is when they pass all of the 12 rules of simply investing. Okay, so that's a lot of information there. I hope that's going to help you to make a good, solid decision. Does this mean that you should go out and buy any stock today that pays a dividend? And the short answer is no.
Speaker 1:Our approach to investing is to invest in quality, dividend paying stocks when they are priced low, and the key words here are quality stocks, not just any stock. It's got to be a dividend paying stock and not just at any price. It should be priced low or undervalued. How do you know, when you're looking at a stock, if it's a quality stock and if it's priced low? So to help you with that, I've created what I call the 12 rules of simply investing, and we've covered all of the rules in today's episode, so you can see them up on the screen again, but I'm not going to go through them again because we've just covered them a couple of minutes ago, at the beginning of this episode.
Speaker 1:So, for those of you that are interested, I've created the Simply Investing course. It is an online self-paced course. It's in 10 modules. Module 1 covers the investing basics. Module 2 covers the 12 rules of Simply Investing. Module three shows you how to apply the 12 rules. Module four shows you the Simply Investing platform and we took a quick look at it in today's episode.
Speaker 1:Module five placing your first stock order. Module six building and tracking your portfolio. Module seven when to sell a stock, which is just as important as to know when to buy. Module 8, how to reduce your fees and risk, especially if you have mutual funds, index funds and ETFs. Module 9 is your action plan to get started right away.
Speaker 1:And module 10, I answer your most frequently asked questions. And module 10, I answer your most frequently asked questions and, of course, we showed you the Simply Investing platform in today's episode. The platform applies the 10 SI criteria to over 6,000 companies in the US and in Canada every single day. So you'll know very quickly if this is a stock you should consider investing in or if this is a stock. You should skip or avoid for now. So if you're interested, you may want to write down the coupon code SAVE10. It'll save you 10% off of the course or the Simply Investing platform as well. If you enjoyed today's episode, be sure to hit the subscribe button. Hit the like button as well. We have a new episode out every week and for more information, take a look at our website, simplyinvestingcom. Thanks for watching.