Wyndham sends strong dividend signal

Ramada

Wyndham Hotels and Resorts, one of the world’s largest franchise hotel companies, is to double its dividend in a move likely to be interpreted as a forceful expression of confidence in its future.

Wyndham paid a quarterly cash dividend of 8 cents per share in the fourth quarter of 2020 and now says it will pay 16 cents per share in the first quarter of 2021.

Although still below payouts made in 2019, the company indicated that the dividend may rise further. Michele Allen, the chief financial officer told a conference call that there was room for further “restoration” of the dividend if it was “sustainable.” She also suggested that share buybacks were possible if conditions allowed. Wyndham spent $50 million on its own stock in 2020 and $242 million in 2019.

The company said the continuing economic and hotel-industry uncertainties meant it decided against giving any guidance about future earnings. However, it quantified the gains that are likely if revenue per available room (RevPAR) increases. It said: “Every point of RevPAR change versus 2020 is expected to generate approximately $2.5 million of adjusted EBITDA change versus 2020. This estimate does not include impacts from license fees or the marketing funds.”

The company said its adjusted earnings before interest tax, depreciation and amortisation (EBITDA) was $56 million in the fourth quarter of 2020 compared to $153 million in the same three months of 2019. For the full year 2020 it was $327 million against $613 million. Global RevPAR in 2020 declined 40% globally to $24.51 from $40.92. It was down 35% in the US and 52% down in Wyndham’s international markets.

Geoff Ballotti, president and chief executive officer, said 2020 was: “the worst year our industry has ever experienced.”

Wyndham revenues declined from $2.05 billion in 2019 to $1.3 billion in 2020. They fell from $492 million to $296 million in the fourth quarter. The company made a net loss of $7 million in the fourth quarter, or $8 cents per share, compared to net income of $64 million, or $68 cents per share, in the last three months of 2019.  The company made a net loss of $132 million, or $1.42 per diluted share, in 2020 compared to net income of $157 million, or $1.62 per diluted share, in 2019.

However, the company did generate positive cashflows. It said: “net cash provided by operating activities for the full-year was $67 million and free cash flow was $34 million. Mr Ballotti said: “Our non-urban, drive-to economy and midscale hotels, combined with our ongoing investment in sales and marketing, captured rising pent-up leisure travel demand”. He added that the company produced: “sequential RevPAR improvements and domestic market share gains” over the course of 2020.”

Shares, which are traded on the New York Stock Exchange, fell on Thursday but at $60 are just above where they were a year ago.

Insight

Wyndham is a good company and is likely to remain one. Sure, it went backwards in 2020 but others did a lot worse. Unusually among peers, Wyndham shares are also back above pre-COVID levels.

Its franchise model means it swerves troublesome issues around property valuations. Its brands of hotel – which include La Quinta, Days Inn and Travelodge – have done OK partly because many of its visitors work in such areas as construction, utilities and on railways. These aren’t jobs which can be done on Zoom or Microsoft Teams. They are jobs which take people far enough away from home to need overnight accommodation but not so far they have to fly. It is reliable custom.

Wyndham’s balance sheet is pretty clean. It is increasing dividends. It talks with conviction about adding new rooms. Given the pandemic, many independent hoteliers will be tempted to take a franchise and the umbrella protection of a brand.

All good, then. The question is not whether Wyndham will continue to be good, it is whether it will continue to stand out. Wyndham has little trouble establishing its credential as peers are reporting 2020 losses left, right and centre.

But consider how it will look if, hopefully when, vaccines kick in and the pandemic is brought properly under control. Remember that it won’t be long before companies will be using washout 2020 figures as comparators. When they do, they will be reporting figures shooting upwards.

Appearances can be misleading. Later this year, Wyndham-like performances might start to look second best. In reality, Wyndham’s operational and stock market performance in 2020 is good. It is likely to remain good in 2021, and beyond, whatever gloss peers come up with. Savvy hotel managers and investors will remember that.