Wyndham Worldwide (WYN) raises dividend by 16%, but P/S ratio is well above average.

Wyndham Worldwide’s (NYSE:WYN) dividend was increased by 16%.  Its overall yield is 2.81%. The firm started paying a dividend in 2007.

Wyndham Worldwide is one of the largest operators of hotels in the world.  I operates within three segments including hotels, vacation ownership, and destination. Its hotel segment operates franchises for its major brands in all major categories including luxury and economy. These are under the Wyndham, Ramada, Days Inn, and Super 8 brands. Approximately 7,920 franchised hotels are under the Wyndham umbrella. The company is based in Parsippany, New Jersey and was founded in 1990.

Wyndham Worldwide has maintained a compelling three-year growth rate of dividends of 18 percent. Wyndham Worldwide currently ranks 1st in dividend yield within the large cap services, lodging category. The quarterly dividend for the March payment will be $0.58 versus the prior year rate of $0.50 per share. Wyndham Worldwide is not a member of our Top 100 Dividend Stocks.  (see below).

The dividend will be paid at the new higher rate on March 20, 2017, to shareholders of record at close of business on March 17, 2017. Wyndham Worldwide Corp. is currently priced at $84.65. Listed in the table below are the quarterly dividend payments since 2010.

Date Quarterly Dividend
3/17/2017 0.58
11/23/2016 0.5
8/24/2016 0.5
5/25/2016 0.5
3/9/2016 0.5
11/25/2015 0.42
8/26/2015 0.42
5/27/2015 0.42
3/11/2015 0.42
11/26/2014 0.35
8/19/2014 0.35
5/28/2014 0.35
3/12/2014 0.35
11/22/2013 0.29
8/20/2013 0.29
5/23/2013 0.29
3/12/2013 0.29
11/19/2012 0.23
8/21/2012 0.23
5/22/2012 0.23
3/13/2012 0.23
11/21/2011 0.15
8/23/2011 0.15
5/24/2011 0.15
3/8/2011 0.15
11/22/2010 0.12
8/24/2010 0.12
5/25/2010 0.12
3/4/2010 0.12


Analysis of Wyndham Worldwide is based upon our five key criteria for the Top 100 list, which include;

Category Value Score
Dividend Yield 2.81% 170
Dividend Growth (3-7 year avg) 22% 73
Forward P/E 13.51 54
S&P Financial Rating BBB- 160
Beta 1.05 150
Total Score 607
% Yield 3 Year Div. Growth Rate 7 Year Div. Growth Rate SPS 2016 P/S Ratio 10 yr P/S Low 10 yr P/S High 5 yr low Yield % 5 yr max Yield %
2.81% 18% 25% 53.20 1.55 0.55 2.10 1.32% 2.94%

Positives;

  • Wyndham Worldwide has paid out a dividend consecutively for the past 19 years.
  • Wyndham Worldwide maintains an investment grade rating of BBB-.
  • Wyndham Worldwide has maintained a three-year growth rate of dividends of 18 percent.
  • Wyndham Worldwide’s dividend yield is above that of the S&P 500 Index.
  • Wyndham Worldwide’s current dividend yield (2.81%) is higher than its five-year average historical dividend yield.

Negatives;

  • Wyndham Worldwide maintains a beta of 1.05, just above the average company.
  • Wyndham Worldwide is trading towards the high-end of its ten-year average price/sales (P/S) ratio.

Latest Earnings & Overall Analysis:

Wyndham Worldwide issued its earnings data on February 15th. The company reported $1.35 earnings per share (EPS) for the Q4 quarter, missing the consensus estimate of $1.30 by $0.05.  Q4 revenue came in at $1.3 billion, up 1 percent compared with Q4 2015. EPS increased 38% from $0.98 per share in the prior year period. Revenues for full year 2016 were $5.6 billion, up just above 1% over 2015. Net income for 2016 was $611 million, $1 million short of full year 2015 results. Earnings per share increased 13 percent to $5.75 from $5.11 in the prior year period.

Net cash for operations was $973 million, slightly below the $991 million in the prior year period. A portion of the reduction was unfavorable currency movements of $48 million. Free cash flow came in at $782 million for full year 2016 in contrast to the $769 million for the same period in 2015.  In examining results by segment, the hotel group revenue was $316 million in Q4 2016, $2 million above last year’s Q4 results.  RevPAR rose 3 percent in Q4. Net room increases were about 3 percent as well compared with year-end 2015. The development pipeline for Windham continued to accelerate to over 1,100 hotels.  Most of this is from international markets, at about 60%.

For the destination segment, revenue came in at $318 million for Q4. This was $8 million above last year’s Q4 numbers. Vacation rental revenues came in at just over $150 million, a 4 percent increase from last year’s results.  compared with $144 million in the prior year quarter. Vacation ownership segment sales came in just above $700 million for Q4, slightly below the $706 million in the fourth quarter of 2015.   Volume per guest was flat while guest numbers were down over 1 percent in Q4.

Wyndham repurchased 2 million shares of common stock for $150 million during Q4 at an average price of $70.34.  During the first six weeks of 2017, the firm also repurchased 1 million shares for $75 million. Net interest expense dropped in Q4 to $32 million versus $35 million the year before. Cash on hand is at $185 million, compared with $171 million at the end of last year.  Long-term debt is now at $3.5 billion, higher than the $3.1 billion number at the end of 2015.

2016 2015 2014 2013 2012
Earnings per Share 5.75 5.11 4.53 3.74 3.16
Annual Dividend 2 1.68 1.4 1.16 0.92
Payout Ratio 37.88% 32.68% 30.91% 31.02% 29.11%

Wyndham has become a powerhouse within its segments. It is also well diversified with three separate units in hotels, vacations, and rentals.  For its hotels, nearly all are franchises. This means that the revenue stream is stable based upon leases with tend to last a decade or longer. That said, growth is now much more moderate than a decade ago as seen from last year’s full year results. Its hotels will grow by low single digits with not much future growth in new facilities. The vacation side of the equations provides more profits and growth potential.  But it is also a competitive business line.  The travel company has over 120,000 managed vacation properties, which makes Wyndham one of the largest players in the industry.  It also has a large presence in time shares, which adds a unique segment to its mix of properties.

The firm’s earnings per share rose by a solid 8% last year. However, it was mostly due to share repurchases and cost reduction. This is a similar theme seen across global firms. Top line growth will be very modest going forward.  We expect the firm to post another year of earnings growth of mid single digits, at about $6.25 per share.  At $84.47 a share, this puts its valuation on the cheaper end at 13.5 times earnings.  However, its price/sales ratio which is based upon revenue is not as favorable. It currently trades at 1.55 times revenue, three times the low of 0.55 set seven years ago.  The dividend is above the market and the payout ratio is below 50 percent. This will allow for future dividend increases in the next few years. Although they most likely will not match the latest increase rate, a low double-digit bump should be a reasonable assumption.  However, the price has advanced from $63 a share a year ago, stretching valuation on a price/sales basis.  Despite the high relative dividend, the share price gains puts its overall value outside the Top 100.

 

Earnings per Share 2017 (projected) $6.25
Dividend $2.32
Payout Ratio 40.70%
Based on the firm’s elevated P/S ratio, price advance, and above average beta, Wyndham Worldwide Corp. does not qualify as one of our Top 100 Dividend StocksPlease subscribe to our monthly premium newsletter to find out more about which stocks are listed in our model portfolio.  

Wyndham Worldwide Corp. Dividend Yield Historical Chart (Click to enlarge)

Chart Explanation:  Dividend growth stocks may be viewed undervalued when the current yield is above historical readings for the past 5 years. 

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