We recently published a list of 10 Best Dividend Stocks Under $5. In this article, we are going to take a look at where Braemar Hotels & Resorts Inc. (NYSE:BHR) stands against the other dividend stocks under $5.
Dividends have consistently been a strong source of returns over time. These stocks hold both theoretical and practical significance in assessing stock values. Although dividend stocks have underperformed the broader market in recent years, their long-term performance remains steady.
Since the beginning of 2024, the Dividend Aristocrats Index—which monitors companies that have consistently raised their dividends for at least 25 consecutive years—has yielded returns of over 8% for investors. However, this performance has fallen short compared to the broader market, which has surged by nearly 19% during the same period. Despite this shortfall, 2024 has been a favorable year for dividends overall. This improvement is largely attributable to several major technology firms, previously known for not paying dividends, announcing the start of their dividend programs. Moreover, these companies have collectively distributed billions in their inaugural dividend payments.
The long-term performance of dividend stocks also takes into account periods of high interest rates, during which other asset classes typically experience declines. This doesn’t imply that dividend stocks only perform well during episodes of high interest rates. While there isn’t a clear connection between their performance and interest rates, historical data shows that they tend to remain relatively stable regardless of the rate environment. For instance, in certain periods of rising US interest rates, such as the mid-1970s, dividend-paying stocks outperformed the broader market. Conversely, as rates decreased from the mid-1980s to the mid-1990s, the performance of high-yield stocks relative to the market remained relatively stable. Even if we set aside historical data and concentrate on more recent performance, we find that elevated interest rates did not have any serious impact on the performance of dividend equities. For example, in 2022, when the Federal Reserve raised its federal funds rate seven times to tackle persistent inflation—four of which were consecutive hikes of 75 basis points—dividend stocks outperformed the broader market. This could be due to the fact that dividend-paying companies tend to be well-established and more stable, with enough confidence in their cash flows to commit to returning cash to shareholders. Moreover, committing to a dividend imposes financial discipline. Instead of using excess cash for acquisitions that may or may not create value, repurchasing shares at uncertain prices, or funding speculative growth initiatives, executives are compelled to manage payouts responsibly.
Given investors’ growing interest in dividend stocks, more companies are initiating and increasing their dividend payments. A key driver behind this trend is that many companies, particularly large tech firms, have substantial cash reserves and are rapidly boosting their free cash flows. This strong financial footing allows them to reward investors with higher dividends. According to the latest report from S&P Dow Jones Indices, companies in the index paid $153.4 billion in dividends during the second quarter of 2024, up from $151.6 billion in the previous quarter and $143.2 billion in the same period last year. The report also highlighted that there were 539 dividend increases reported, compared to 460 in the same period last year, marking a 17.2% year-over-year growth. The total amount of these increases reached $20.4 billion for the quarter, up significantly from $9.8 billion in Q2 2023. With that, we will take a look at some of the best dividend stocks under $5.
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Is Braemar Hotels & Resorts Inc. (BHR) The Best Dividend Stock Under $5?
An aerial view of a luxury hotel, its vibrant colors and modern architecture reflecting a sense of elegance.
Braemar Hotels & Resorts Inc. (NYSE:BHR) is an American real estate investment trust company, based in Texas. The company owns and operates luxury hotels and resorts. The company’s business is gradually recovering after facing significant challenges during the 2020 pandemic. The stock has climbed over 23.2% since the beginning of 2024, with a 12-month return of nearly 9%. Additionally, its second-quarter 2024 earnings were promising and have reassured investors.
In the second quarter of 2024, Braemar Hotels & Resorts Inc. (NYSE:BHR) is mainly pleased with the performance of its urban hotels, which saw a 6.3% increase in revenue per available room (RevPAR) compared to the same quarter last year. Looking ahead, the company believes that its portfolio is well-positioned for outperformance in both the near and long term. Moreover, it is making significant progress in executing its recently announced shareholder value creation plan. This includes the recent sale of the Hilton La Jolla Torrey Pines at a very attractive cap rate, ongoing evaluations of additional potential asset sales, a $50 million preferred share redemption program, and a $50 million share buyback authorization, all demonstrating their commitment to maximizing value for investors.
Braemar Hotels & Resorts Inc. (NYSE:BHR)’s balance sheet also remained strong. It ended the quarter with over $120.3 million in cash and cash equivalents and has restricted cash of $60.7 million. The company offers a quarterly dividend of $0.05 per share and has a dividend yield of 6.51%, as of August 23.
Braemar Hotels & Resorts Inc. (NYSE:BHR) was included in 15 hedge fund portfolios at the end of Q2 2024, the same as in the previous quarter, as per Insider Monkey’s database. The stakes held by these hedge funds have a collective value of nearly $25 million.
Overall BHR ranks 4th on our list of the best dividend stocks under $5. While we acknowledge the potential for BHR as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than BHR but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
