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This Hotelier Offers
a Dependable 11.3% Yield
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Published:
June 16, 2008
MHI Hospitality (Nasdaq: MDH, $6.00) is the
limited partner of an operating company that owns a small chain
of upscale and mid-scale hotels and motels in the Mid-Atlantic,
Midwest, and Southeastern United States.
MHI has paid a dividend of $0.17 per quarter since early 2005.
With an annual dividend of
$0.68 per year, the company is
yielding nearly 11.3% at current prices.
MHI owns six upscale and midscale hotels under major brand names
such as Hilton, Crowne Plaza, and Starwood (NYSE: HOT). It
currently operates in Georgia, North Carolina, Florida, Indiana,
and Pennsylvania, with just under 2,000 rooms available for
travelers.
A variety of factors have conspired against the REIT's financial
performance over the past year and a half. First, it is
renovating two key properties, causing revenues to fall. Next,
business travel is somewhat weak because of the slowing economy.
Finally, the company has suffered a financial hit caused by
interest rates swaps on its line of credit.
For 2007, MHI saw revenues marginally increase compared to 2006
levels, from $67.2 million to $69.8 million. Net income,
however, dropped from $0.48 per share to $0.36. Meanwhile, funds
from operations dropped from $0.95 per share to $0.87 -- a key
figure since it is the source of dividends.
This financial trend continued to worsen slightly in the first
quarter of 2008 as revenues dropped from $16.9 million in 2007
to $15.5 million. Revenues per available room (RevPAR), a key
metric in the hotel industry, dropped -5.5% while occupancy
decreased -8.2%, in part because of the renovations. The company
fell from a 2007 per-share profit of $0.09 to a loss of -$0.07
in the first quarter.
That said, MHI's forecast for the whole year was reassuring. The
company projected per-share funds from operations of $1.02-1.12,
including the negative impact of an interest rate swap on the
company's line of credit. The forecast was admittedly tempered
by a warning that rising interest rates could have an adverse
impact on the company's financial performance.
Still, if MHI meets its target, it would be paying out only
between 66-73% of funds from operations with its current
dividend amount. This is a manageable level that would likely
allow the dividend to be maintained at the current rate.
MHI
appears to be in the early stages of a financial rebound as
renovated properties begin to kick in and lead to increased
sales and cash flow. This REIT is suitable for aggressive
investors seeking a robust yield of nearly 11.3% who are willing
risk that an increase in interest rates could adversely affect
the company's cash flow and therefore, possibly its dividend.Good investing!
Carla Pasternak
Editor
High-Yield
Investing
About High-Yield Investing
High-Yield Investing is
a monthly investment newsletter that brings you a wealth of information on the
market's leading income stocks and funds, as well as a host of relatively
unknown investment options that you probably won't find coverage of anywhere
else. Many
of these securities provide investors with annual dividend yields of 10%, 15%,
even 20% or more. The newsletter not only provides subscribers with
investing ideas that produce incredibly high dividend yields, but the kicker is
that these high-yield investments have also consistently outperformed the major
market averages. (Learn
More)
About Carla Pasternak
Editor of StreetAuthority.com's High-Yield Investing newsletter since its
inception in May 2004, Carla Pasternak draws on a variety of financial
backgrounds to make profitable calls on income-generating stocks for her
readers.
Carla has been employed in the investment industry for more than two decades.
In addition to her work as a writer for several nationally recognized financial
publishers, her previous experience includes a position as president of a
well-respected investor relations firm. She has also been writing shareholder
reports for public companies since 1980.
A highly successful investment analyst, Carla specializes in high-yield,
income-paying stocks. In that pursuit, she's always mindful to select companies
that not only pay rich dividends, but that also deliver strong long-term capital
gains. Furthermore, Carla's experience in writing SEC filings gives her the
added insight required for her to truly understand a company's current and
future financial health.
On the educational front, Carla holds BA, MA, MBA and Ph.D. degrees. When
she's not watching the market, she's teaching business courses at the college
level and managing millions of dollars in portfolio assets.
To learn more about Carla Pasternak's premium income investing newsletter -- High-Yield
Investing -- please visit
this link.
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