Returns on investments
In this article we’ll discuss if Marriott has been providing adequate returns to its shareholders. We’ll measure the growth in its share price, earnings per share (or EPS), and dividend per share (or DPS).
Share price appreciation
Marriott’s shares closed at $64.58 on October 9, 2014. This was an ~32% increase from the beginning of the year. Its stock price was $48.96 at the beginning of the year. This is the highest increase in share price among its peers in 2014. It even reached a 52-week high of $73.28.
Other major U.S. hotel companies only had single digit growth. Hilton’s (HLT) share was listed in December 2013. It increased by 6.9% to $23.37. Wyndham’s (WYN) shares only increased by 4.3% to $76.71 during the same period. Starwood’s (or HOT) share price decreased by 3.7% to $76.07—from $79 at the beginning of the year.
Exchange-traded funds (or ETFs)—like the PowerShares Dynamic Market Portfolio (or PWC), the PowerShares Dynamic Leisure & Entertainment Portfolio (or PEJ), or the Consumer Discretionary Select Sector SPDR Fund (or XLY)—have holdings in hotel company stocks.
EPS and DPS
Marriott’s diluted EPS increased at a compound annual growth rate (or CAGR) of 5.6%. Its DPS increased at a higher CAGR of 16.4% from 2004–2013. Growth in DPS has been three times greater than the growth in EPS during the period. Even the recent three-year CAGR of DPS, at 45.6%, is 2.5 times that of the EPS CAGR, at 18.2%, between 2010 and 2014.
Marriott’s shareholders benefited from the significant increase in DPS over the years. The percentage of its earnings distributed to shareholders is measured by dividend payout. Dividend payout is calculated as EPS divided by DPS. It increased from 13.3% in 2004 to 32% in 2013.
There’s an expected increase in Marriott’s EPS at a four-year CAGR of 19%–23% to $4 or $4.6 in 2017. If the economic conditions are favorable and if Marriott continues to increase the payout ratio, as it did in the past, shareholders can expect to earn more in terms of dividend in the years to come.