The owner of some of America's most ritzy hotels did something
unusual last Friday. It announced a huge 44% increase in its
The company is
Pebblebook Hotel Trust (
. This type of
is great news for investors. In fact, many hotel stocks like
don't even pay a dividend.
With its dividend increase, the stock now yields 2.7%. But
don't scoff at the low yield: this dividend stock also offers
investors something much more…
You've probably never heard of Pebblebrook Hotel Trust until
today. I wasn't familiar with the company until news of the
dividend increase showed up in one of my news screens.
Pebblebrook is a
real estate investment trust
or REIT that owns upscale hotels and resort properties in the
U.S. The company is structured for the benefit of its
shareholders, and is required to distribute most of its cash flow
in the form of dividends.
Unlike most hotel companies, Pebblebrook doesn't operate or
manage the hotels. The company isn't responsible for booking
rooms, welcoming guests, or managing the front desk. In fact, the
company has just 24 employees. That's less than one employee per
Instead of operating hotels, the company owns the hotel
properties. It leases the buildings to some of the top hotel
chains, including Intercontinental, Sofitel, W Hotel, and Westin.
That means that Pebblebrook benefits from the success of hotels
serving affluent guests, but doesn't have the same operational
Since its IPO in 2009, Pebblebrook has bought 29 hotel
properties at a cost of more than $2.1 billion. The company's
properties with 6,416 hotel rooms are in 12 metro areas,
including New York, Washington D.C., San Francisco, and Los
As the travel business rebounded nicely in recent years,
hotels that cater to the upper class have fared best. That's
because affluent customers are traveling more for both business
One key metric in the hotel business is known as revenue per
available room. In the hotel industry, they call it RevPAR.
Without getting into all the details, the company's revenue per
room increased 6.4% last year.
Pebblebrook aims to buy properties when they are attractively
priced. The company then makes renovations to improve the
properties and justify higher room rates. Last year, the company
invested nearly $47 million on renovations at five
Those investments will continue this year. As a result,
Pebblebrook expects revenue per room to rise at a faster clip.
With RevPAR expected to be $195 this year, Pebblebrook hotels
earn nearly three times the industry average of $72.
Growing demand for high-end hotel rooms has been a nice
tailwind for this company. But it's management's execution that
is delivering the profits and growth.
From 2011 through 2014, the company expects to grow its funds
from operations from $1 to $1.82 per share. That equals an
impressive annual growth rate of 24%.
Not surprisingly, that strong financial performance has
translated into higher dividends. While the latest quarterly
increase is dramatic, it's nothing new. In the last three years,
the company's dividend has increased 92%.
The striking performance at Pebblebrook hasn't gone unnoticed.
Over the last year, PEB stock has risen 36%. Over the same
Vanguard REIT Index ETF (
is flat and the
SPDR S&P 500 (
is up 19%.
Top Hotel REIT Crushes The Market
Source: Yahoo! Finance
Pebblebrook stock goes
on March 31. That means that investors must own the stock by the
end of the month to collect the quarterly dividend on April
Many income investors will overlook this hotel REIT due to its
relatively low 2.7% yield. But that would be a mistake. With
annual cash flow expected to grow by more than 20%, this stock
could continue to reward shareholders with higher dividends next
year. And handsome dividend growth is likely to propel this stock
higher in the years ahead.
As you know, I'm a fan of
. For investors seeking superior overall returns, stocks that
grow their dividends are the best place to invest. I just
discovered Pebblebrook, and thought you would want to hear about
this unique opportunity to invest in America's booming luxury
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