Xenia Hotels & Resorts, Inc. (NYSE:XHR) is about to trade ex-dividend in the next 4 days. Investors can purchase shares before the 27th of September in order to be eligible for this dividend, which will be paid on the 15th of October.
Xenia Hotels & Resorts's upcoming dividend is US$0.3 a share, following on from the last 12 months, when the company distributed a total of US$1.1 per share to shareholders. Looking at the last 12 months of distributions, Xenia Hotels & Resorts has a trailing yield of approximately 5.1% on its current stock price of $21.41. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Xenia Hotels & Resorts paid out more than half (53%) of its earnings last year, which is a regular payout ratio for most companies. That said, REITs are often required by law to distribute all of their earnings, and it's not unusual to see a REIT with a payout ratio around 100%. We wouldn't read too much into this. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Fortunately, it paid out only 49% of its free cash flow in the past year.
It's positive to see that Xenia Hotels & Resorts's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see Xenia Hotels & Resorts's earnings have been skyrocketing, up 35% per annum for the past five years. The current payout ratio suggests a good balance between rewarding shareholders with dividends, and reinvesting in growth. With a reasonable payout ratio, profits being reinvested, and some earnings growth, Xenia Hotels & Resorts could have strong prospects for future increases to the dividend.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last five years, Xenia Hotels & Resorts has lifted its dividend by approximately 3.6% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Xenia Hotels & Resorts is keeping back more of its profits to grow the business.
The Bottom Line
Should investors buy Xenia Hotels & Resorts for the upcoming dividend? Xenia Hotels & Resorts's growing earnings per share and conservative payout ratios make for a decent combination. We also like that it paid out a lower percentage of its cash flow. Overall we think this is an attractive combination and worthy of further research.
Wondering what the future holds for Xenia Hotels & Resorts? See what the eight analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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