CLDT Stock: Collect a Safe, High Yield from This Monthly Dividend Stock
CLDT Stock: Top Monthly Dividend Stock Paying 6.3%
In today’s market, investors looking for a monthly dividend stock usually have to make a decision. They can either have a low-yield stock with high dividend safety, or a high-yield stock that might cut its payout soon.
One company, however, might be able to offer investors both. It’s Chatham Lodging Trust (NYSE:CLDT).
Headquartered in West Palm Beach, Florida, Chatham Lodging Trust is a real estate investment trust (REIT) specializing in hotel real estate. The company invests primarily in upscale extended-stay hotels and premium-branded select-service hotels.
Chatham is a monthly dividend stock. Paying $0.11 per share each month, the company offers an annual yield of 6.3% at the current price. To give you some perspective, the average dividend yield of all S&P 500 companies right now is at just 1.9%.
With a higher yield and more frequent distributions than most stocks in today’s market, Chatham certainly deserves income investors’ attention.
The company has also been growing its payout. Since Chatham’s initial public offering in 2010, its annual dividend has been raised by 89%. The latest dividend hike, which arrived last year, was a solid 10% increase. (Source: “Dividends History,” Chatham Lodging Trust, last accessed September 22, 2017.)
Of course, past performance does not guarantee future results. As is the case with any high-yield stock, investors need to check Chatham’s dividend safety before making any investment decision. So let’s take a look at the company’s financials.
Chatham’s business is fairly easy to understand: the company invests in hotels. Its focus has been on owning and acquiring select service hotels, because they offer higher margins than full-service hotels. Chatham’s select service hotel portfolio includes well-known names such as “Courtyard by Marriott,” “Hampton Inn,” and “Hampton Inn and Suites.”
In the hotel business, location is of critical importance. For that reason, the company has a coastal preference. As of the end of 2016, approximately 50% of Chatham’s portfolio is located on the West Coast, and 24% in the Northeast. These coastal regions include high-growth markets such as Silicon Valley, Los Angeles, and San Diego. (Source: “September 2017 Investor Presentation,” Chatham Lodging Trust, last accessed September 22, 2017.)
With brand-name select-service hotels located in fast-growing markets, Chatham is running a highly profitable business. In 2016, the company achieved a total earnings before interest, tax, depreciation and amortization margin of 41.2%, the highest among all select service lodging REITs.
In REIT investing, funds from operations (FFO) is a key metric. This is because at the end of the day, a REIT’s dividend can only be sustainable if the company can generate enough cash flow to cover those payments.
The good news is, based on what Chatham is doing, its generous payout is more than safe. In the second quarter of 2017, the company generated adjusted FFO of $0.65 per share, which was more than enough to cover the $0.33 of dividends per share paid during this period. (Source: “Chatham Lodging Trust Announces Second Quarter 2017 Results,” Chatham Lodging Trust, August 2, 2017.)
For full-year 2017, Chatham expects to achieve a payout ratio of 62%. This would leave a wide margin of safety and the potential for future dividend increases.
That’s why for investors looking for a high-yield monthly dividend stock, Chatham Lodging Trust should be near the top of their list.