DiamondRock Hikes Dividend - Analyst Blog

Bethesda-based real estate investment trust (REIT), DiamondRock Hospitality Company DRH declared a 20.6% hike in its quarterly cash dividend rate. The company will now pay a dividend of 10.25 cents per share for first-quarter 2014, up from 8.50 cents paid in the prior quarter. The increased dividend will be paid on Apr 10, 2014 to shareholders of record on Mar 31.

The dividend hike at DiamondRock reflects its solid operating results in 2013 and an enhanced financial position. The company has experienced an average surprise of 11.13% in the last 4 months. As of Dec 31, 2013, the company had cash and cash equivalents worth $144.6 million, rising substantially from $9.6 million as of Dec 31, 2012. Hence, we believe DiamondRock has sufficient cash to pay dividends.

A steady dividend payout is in line with the long-term strategy of this lodging real estate investment trust (REIT) to provide attractive risk-adjusted returns to its stockholders. Based on the current dividend rate, the 2014 annual dividend rate comes to 41 cents per share, 7 cents above the 2013 annual dividend of 34 cents per share. This new dividend rate results in an annualized yield of about 3.4% based on DiamondRock's closing price of $12.19 on Mar 25.

Apart from DiamondRock, a number of other REITs have increased their dividend payouts last week. This includes Kite Realty Group Trust KRG, which declared an 8.3% sequential rise in its first-quarter 2014 dividend rate to 6.5 cents per share. The other is UDR Inc. UDR that announced a 10.6% sequential hike in its quarterly dividend rate to 26 cents per share.

Solid dividend payouts are arguably the biggest attraction for REIT investors since the U.S. law requires these companies to distribute 90% of their annual taxable income in the form of dividends to shareholders.

DiamondRock owns, acquires, and invests in upscale hotels under the Hilton, Marriott and Westin brands across the U.S. Currently, the company owns 26 premium hotels with over 11,000 rooms.

DiamondRock currently carries a Zacks Rank #3 (Hold). A better-ranked REIT is Sotherly Hotels Inc. SOHO having a Zacks Rank #1 (Strong Buy).