Why Hilton’s Dividend Yield Curve Has Reversed Course
Hilton’s revenue and earnings in 2015 and 2016
Hilton Worldwide’s (HLT) revenue rose 7% in 2015 and 3% in 2016. The fall in revenue growth was due to lower growth by its Management and Franchising segment and Timeshare segment between 2015 and 2016. Its Ownership segment’s revenue fell in both years. Other revenue from managed and franchised properties also contributed to revenue growth.
Hilton’s expenses rose 8% and 3% in 2015 and 2016, respectively, and its operating income rose 24% in 2015 before falling 10% in 2016. The growth in 2016 was also influenced by a substantial gain on the sale of assets. Its interest expenses fell in 2015 before rising in 2016. These ups and downs led to its EPS (earnings per share) rising 108% in 2015 and falling 75% in 2016.
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Hilton’s revenue and earnings in the first nine months of 2017
Hilton’s revenue grew 24% in the first nine months of 2017. Management and Franchising revenue drove the growth, offset by Ownership. Other revenue from managed and franchised properties also contributed to growth. Expenses rose 21%, operating income rose 45%, and interest expenses also rose. A loss on debt extinguishment was recorded during the period. Together, these developments translated into a 43% fall in the company’s EPS. Share buybacks have enhanced its EPS, and the company has maintained an impressive free cash flow balance.
Hilton’s dividend yield
The company’s 100% dividend-per-share growth in 2016 has been followed by a 29% fall in 2017. Meanwhile, its stock price has gained 27.2% YTD (year-to-date), compared with 27% in 2016, which explains the company’s downward dividend yield curve. The industry is vulnerable to intense competition from online travel agents, offset by improving US economic fundamentals.
Hilton versus broad indexes
Hilton Worldwide has a PE (price-to-earnings) ratio of 69.4x and a dividend yield of 0.8%, compared with the sector’s average PE ratio of 38.8x and dividend yield of 1.1%. The S&P 500 (SPX-INDEX) (SPY) offers a dividend yield of 2.3%, PE ratio of 22.6x, and YTD return of 15.6%. The Dow Jones Industrial Average (DJIA) (DIA) has a dividend yield of 2.3%, PE ratio of 21.1x, and YTD return of 19.1%. The NASDAQ (COMP-INDEX) (ONEQ) has a PE ratio of 25.3x and YTD return of 25.7%.
The WisdomTree US Total Dividend ETF (DTD), a dividend fund with exposure to Hilton Worldwide, has a PE ratio of 20.5x and dividend yield of 2.5%. The WisdomTree US LargeCap Dividend ETF (DLN) also has exposure to Hilton, and has a PE ratio of 20.1x and dividend yield of 2.5%.