Royal Caribbean Ups Dividend Twofold - Analyst Blog

Cruise company Royal Caribbean Cruises Ltd. (RCL) recently more than doubled its quarterly dividend to 25 cents per share from 12 cents. This equates to an annual payout of $1.00 per share. The new dividend will yield 2.58% annually.

The increased quarterly dividend will be paid on Oct 8, 2013 to stockholders of record as of Sep 24. The current hike comes exactly after a year of its prior dividend hike announced in Sep 2012 (from 10 cents to 12 cents, which was paid on Oct 9, 2012).

Following the recovery in the leisure and recreational services sector, Miami-based Royal Caribbean resumed its quarterly dividend in 2011. Earlier in Oct 2008, Royal Caribbean, the second largest cruise company, suspended the payment of its annual dividend in the wake of the economic recession and high cost of raising new capital.

With the recent hike, Royal Caribbean's dividend now matches that of another cruise company Carnival Corp. (CCL). Carnival's current dividend yield stands at 2.67% as Sep 11.

Royal Caribbean's financial position is stable. It generates sufficient free cash flow to return capital to shareholders. At the end of the second quarter of 2013, cash and cash equivalents decreased to $205.2 million.

With lesser ship additions in the next few years leading to lower capital expenditure, free cash flow is expected to rise further. However, its growth momentum will not pick up before the delivery of the first Sunshine ship in late 2014.

Royal Caribbean is leaving no stone unturned to enhance the company's long-term value. Alongwith the dividend hike announcement, Royal Caribbean also proposed to do away with the staggered terms for directors and replace it with annual elections.

Furthermore, it elected William L. Kimsey as its first lead director who will be a link between the board's non-management members and Chairman and Chief Executive Officer.  The lead director will also be involved in meetings with major shareholders.

Royal Caribbean currently carries a Zacks Rank #3 (Hold). Other players in the leisure and recreational industry, which look attractive at current levels, include Rick's Cabaret International Inc. (RICK) and Cedar Fair L. P. (FUN). While Rick's Cabaret carries a Zacks Rank #1 (Strong Buy), Cedar Fair retains a Zacks Rank #2 (Buy).