What is up with Apple Hospitality
Apple hospitality stock price has been sinking like a rock recently, and this is what I think about it.
By. Jacob
Edited: 2020-11-12 11:25
November 2020 update: I still own Apple Hospitality, and I am starting to see signs of recovery.
Occupancy levels is now at around 50%, all of their hotels are open again, and they are starting to generate a profit; it may, however, still be some time before they start paying regular dividends.
While a coronavirus vaccine has been announced by Pfizer, there is reason to believe we might still fight this virus for some time. Play close attention to what health experts and scientists are saying in the coming months. However, even if the virus will stay with us for years to come, I think it is something we will learn to live with, and not necessarily something that will have major impact on APLE — but that is just my own gut feeling based on what has happened with other illnesses like HIV, the flu, and measles; you should pay attention to what scientists are saying about this topic as we move forward!
When the vaccine was announced, Apple Hospitality jumped upwards on the news, but this move may still have been a bit premature. I do believe it will eventually recover, but there are just too many unknown variables right now to say for sure what effect a vaccine will have. EPR Properties is another stock that is also effected by the current situation, and it also jumped on the news, read: Why EPR Properties Is Up 30%+
I am a dividend investor, and by that I really just mean, I like dividends whenever I can come by them. I do not exclusively invest in dividend paying companies, but they are most welcome, as I can use them to buy other stocks—without selling any of my shares. I also own shares (long) in Apple Hospitality (APLE), which is a Real Estate Investment Trust (REIT) that operates a diversified portfolio of over 200 hotels spread around the US. In theory, a fairly stable investment that should yield a steady stream of dividend income.
After their last 10-K report and a small earnings miss, the stock has been sinking like a rock in value. This is not alarming to me at the moment—especially not while they continue to pay the 0.100$ dividend—but also as I suspect the main cause for the drop is irrational fears due to the coronavirus, and not because anything changed in a big way otherwise.
A lot of other stocks has been sinking like rocks as well, and when I see one of my stocks fall like this, I will look at two things, to help me determine if there is any real cause for alarm. I will of course try to stay a step ahead by reading relevant information about the company, including statements from the company. But, another thing I look at is what the rest of the market is doing.
When I see something like this happen, and if I can not find any serious reason for the drop, I will usually just look at it as an opportunity to buy more stocks. Keep in mind, if a dividend paying stock suddenly drops, the Yield for new shares that you buy will be higher — this means you can increase your Yield on Cost (YOC) just by buying more stocks!
Not the first buy opportunity
Apple Hospitality did something similar to this not long ago. In fact, back in December 2018, the price dropped to just 14$ per share, and within just a couple of months, it returned to around 16$ per share again.
The company has however forecasted flat to slightly negative
RevPAR growth
for 2020 (Page 5 in their 10-K for 2019). I do not think that is reason enough to not buy a stock, and I also do not think anything has fundamentally changed to warrant the kind of drop we have seen doing the coronavirus scare.
Warren Buffet: Somebody could come along and offer you a quote on your house today, and it could be 2 percent less than they offered you yesterday, but if you like the house, it doesn't make any difference.
News on Apple Hospitality is far between, which means we have to do our own research. For instance, you can find out a lot of useful information by reading the 10-K reports.
Since Apple Hospitality is in the hotel business, I think it makes sense to conclude that the recent drop is caused by fears related to coronavirus, since it probably will effect the rooms occupancy, at least in the short term. Keep in mind we still do not know how long the virus will linger, and how long travel, tourism, and so on, will be effected.
Why I still like Apple Hospitality
I still like Apple Hospitality APLE because not only do I think the drop is unwarranted, but also because it pays dividends on a monthly basis—and it has a high yield! If you buy now, at a price around 13$, the yield you will be getting is just above 9% per year!
Yes, dividends has not been growing, and the stock price has dropped a lot. But, I just see this as an opportunity to buy more shares. Also, with these high yields, I do not really think it matters much that growth is flat for a while, and dividends are not being raised. Sure I would like to see earnings grow in the future, and as a result, a raise in dividends. But, I prefer they maintain the sustainability of their dividends rather than raising them doing a period of low growth.
At the current stock price level, you can use them to generate a higher yield to make up for owning companies like Microsoft and Apple, which pays a much lower yield (sub 2%). High Yield stocks allows you to build your dividend income faster than low yielding stocks. It may be a bit more risky, but it could prove to be worth it in the long term.
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