Marriott International (MAR) Dividend Suspension

Marriott International (MAR) announced a dividend suspension early in the COVID-19 pandemic. It is one of the 412 companies (as of this writing) on the list of coronavirus dividend cuts and suspensions. The hotel management company raised the dividend at a relatively fast clip starting in 2009 after the Great Recession, making it an excellent stock to own for dividend growth investors.

But Marriott International operates in an industry that is being materially impacted by the COVID-19 pandemic. Travel, hospitality, and leisure companies are adversely affected by local government restrictions and fear of travel. Customers have severely curtailed both leisure and business travel. Marriott managed to pay its first-quarter dividend. However, the hotelier suspended its future dividend with no indication of when the dividend would be reinstated. It is unlikely that the dividend will be reinstated this year and even possibly in 2021. As a result, Marriott will lose its Dividend Contender status. 

Overview of Marriott International

Marriott International was founded in 1927 and is headquartered in Bethesda, Maryland. The company is the largest hotel operator in the world. In North America, Marriott has about mid-teens market share. Marriott has operations in about 134 countries. The company manages and operates over 1.4 million rooms in about 7,400 properties and 30 brands. The hotelier operates in five categories: managed, franchised, owned/leased, residences, and timeshare. The great majority of rooms are in the managed and franchised categories.

The 30 brands are divided into Luxury, Premium, Select, and Longer Stays. Major brands include The Ritz-Carlton, St. Regis, W Hotels, JW Marriott, Marriott, Sheraton, Vacation Club, Westin, Meridien, Renaissance, Courtyard, Four Points, Springhill Suites, Fairfield, Residence Inn, and more. Major competitors include Hilton Worldwide (HLT), Hyatt Hotels (H), Choice Hotels International (CHH), and InterContinental Hotels Group PLC (IHG). In addition, the company bought Starwood in 2016.

Total revenue in 2019 was $5,373 million. J.W. Marriott Jr., son of the founder, is the Chairman. The Marriott family still owns about 18% of outstanding shares.

Marriott International Dividend

At the start of 2020, Marriott International had paid a growing dividend for ten consecutive years. This fact made the stock a Dividend Contender. At the time, the regular quarterly cash dividend was $0.48 per share. The annual dividend was $1.92. This time was not the first time that the dividend was cut or suspended. Marriott International has paid a dividend since 1998. But the dividend was suspended in 2009 during the financial crisis or Great Recession. The regular quarterly cash dividend was $0.0875 per share and zero after the March 2009 distribution. The dividend was paid again in February 2010. The dividend was increased rapidly from that point. The trailing 10-year growth rate was 35.7%. You can see the dividend growth and dividend growth rate in the chart below.

Marriott International Dividend Suspension

Marriott International was hit pretty early by COVID-19 due to its worldwide operations. It was probably one of the first major U.S. companies affected by the coronavirus pandemic since it operates hotels in China. Occupancy levels dropped dramatically in China and then around the world as the virus spread. The drop was significant, and in the worst weeks, the hotelier’s occupancy levels were below 15% in many countries worldwide by April 2020. Roughly 25% of Marriott International’s hotels were closed worldwide, including 16% in North America and about 75% in Europe. In addition, revenue per hotel room dropped 80% or more in the worst weeks as leisure and business travel dropped dramatically worldwide. Obviously, Marriott International needed to take drastic action due to the severity of the impact.

Marriott’s management moved to improve liquidity and fortify the balance sheet. This action included suspending the dividend. As a result, Marriott International was one of the first large companies to announce a dividend suspension on March 18, 2020. Specifically, the company stated:

The company’s levers to preserve cash include reducing or eliminating share repurchases, suspending the cash dividend, reducing payroll and other costs and cutting back investment spending.  The company has not repurchased shares in 2020 other than the $150 million of share repurchases reported in the February 26, 2020 press release, and Marriott anticipates that its previously announced first quarter 2020 dividend, payable on March 31, 2020, will be the last until conditions improve.

From the first quarter, 2020 transcripts, the company stated:

We’ve been focused on preserving liquidity and shoring up our cash position. In mid-April, we issued $1.6 billion of five-year senior notes, and last week, we raised another $920 million through amendments to our co-brand credit card deals. We also eliminated dividends and share repurchases until further notice. Our current cash and cash equivalent amount on hand is around $3.9 billion.

Final Thoughts on Marriott International Dividend Suspension

Marriott International is the global leader in hotel management. It recovered from earlier recent recessions, including the dot-com boom and also the financial crisis. However, the COVID-19 pandemic is seemingly different. People are more hesitant to travel for either leisure or business. Other hotel companies, such as Wyndham Destinations (WYND), have also cut their dividend. In addition, remote working has further curtailed demand for business travel. If China serves as an example, demand will return but at lower levels for some time.

Marriott reported that markets are starting to recover in May and June, and seemingly the worst is behind it from the perspective of the pandemic. In April through June, revenue dropped -72%. But that does not mean occupancy and revenue per room will return to levels at the start of the year in the near future. The hotelier is still looking to cut expenses and announced a 17% reduction in its corporate workforce, or 673 people. This action suggests that Marriott is not expecting occupancy levels to more normal levels soon.

Overall, even if the dividend is reinstated, I view Marriott International as a riskier stock due to rising competition and businesses changing how their employees work. There is competition from Airbnb, which seemingly is a threat for leisure travel and even business travel. However, as remote working settles in and corporations realize that technology can result in cost savings without losing productivity, business travel may be reduced. In my opinion, dividend growth investors can probably find better options.

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