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Is Hilton’s Stock Expensive?

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New dividend policy

Hilton Worldwide was listed in 2013 and has not paid a dividend to date. However, the company initiated a new dividend policy this quarter under which it would pay a quarterly dividend of $0.07 per share. The company expressed its intention to grow dividends over time and would aim at maintaining a target payout ratio of 30% to 40% of recurring cash flow. This new dividend policy is expected to draw positive attention from investors.

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PE multiple

Hilton stock currently has a high PE (price to earnings) ratio of about 39 as compared to Marriott’s (MAR) 24, Starwood’s (HOT) 22, Wyndham’s (WYN) 17, and Hyatt’s (H) 25.

The company’s forward PE multiple is also higher than most of its peers. HLT’s forward PE stands at 28 as compared to Marriott’s 20.7, Starwood’s (HOT) 23.8, and Wyndham’s (WYN) 15.2. Hilton’s forward PE is lower than Hyatt’s forward PE of 39.

EV/EBITDA

For capital-intensive companies such as Hilton Worldwide, EV/EBITDA is a better valuation ratio. It helps overcome many drawbacks of the PE ratio. Hilton’s current EV/EBITDA value of 14.37 is higher than most of its peers. Marriott, Starwood, Wyndham, and Hyatt have EV/EBITDA of 15.2, 12.88, 11.45, and 9.93, respectively.

Hilton’s forward EV/EBITDA multiple of 12 is also higher than Starwood’s 11.8, Wyndham’s 10.6, and Hyatt’s 10.7. It is, however, below Marriott’s forward EV/EBITDA multiple of 12.5.

Both PE and EV/EBITDA multiples indicate that investors will have to pay a higher price for Hilton’s next 12-month earnings. However, this also indicates higher expectations of a strong future growth. The company’s portfolio includes a number of well known brands, and the company still continues to invest in developing new brands primarily through the franchise model. Thus, Hilton will likely generate good returns in the future.

The Consumer Discretionary Select Sector SPDR Fund (XLY) invests in hotel companies. Though XLY does not have any holdings in Hilton, 0.62% of its holdings are in Marriott (MAR), 0.56% of its holdings are in Starwood (HOT), and 0.41% of its holding are in Wyndham (WYN).

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