Investing in Hospitality: Hotel Stocks and REITs

Introduction

Every time someone books a hotel room, a company somewhere is earning money. Travel and hospitality are huge industries, and investors can own a piece of them through the stock market. Hotel stocks and hotel REITs are two of the most common ways to do this. Each works differently and comes with its own risks and rewards.

Hotel Company Stocks

Big hotel brands like Marriott, Hilton, and Hyatt are publicly traded companies. Interestingly, these companies do not own most of the hotels with their names on them. Instead, they mainly earn fees by franchising their brands and managing hotels for property owners. This "asset-light" model means they can grow quickly without spending billions on buildings.

Hotel REITs

Hotel REITs are companies that actually own hotel properties and earn money from room rentals and other hotel revenue. Host Hotels & Resorts, for example, owns dozens of upscale hotels across the U.S. Like all REITs, they must pay out most of their taxable income as dividends, which can provide steady income for investors. However, their profits rise and fall more directly with how full their hotels are.

The Risks

Hospitality is very sensitive to the economy. When times are good, people travel more for work and vacation, and hotel profits rise. But during recessions, travel is often one of the first things people and businesses cut back on. The pandemic showed this clearly in 2020, when travel nearly stopped and hotel stocks and REITs plunged.

How to Invest

You can buy individual hotel stocks or REITs through a brokerage account. Some ETFs focus on travel, leisure, or real estate, which spreads your money across many companies. Before investing, look at how much debt a company has and how it performed during past downturns. Hospitality can be a fun way to invest in an industry you understand, as long as it is part of a diversified portfolio.

Conclusion

Hotel stocks and REITs let investors share in the profits of the travel industry. Brand companies earn fees, while REITs own the properties and pay dividends. Both can do well when travel is booming but struggle during downturns. If you love travel, investing in hospitality could be a great way to learn more about the business!