The cruise industry has run into some choppy waters lately, but the payouts have never been better. Royal Caribbean (RCL +7.34%), for one, boosted its dividend rate on Friday. The quarterly distributions will now be $0.78 a share, up from $0.70, pushing the stock's yield to a respectable 2.9%.
Industry bellwether Carnival (CCL +6.99%) (CUK +6.89%) is weighing in with an even beefier 4.4% yield, but with its own set of challenges driving the stock to four-year lows this summer, it's probably not the way shareholders wanted to achieve a chunkier distribution rate. Norwegian Cruise Line (NCLH +4.59%) has never paid a dividend since going public at $19 in 2013, but since its fortunes tend to coast alongside its two larger peers, it's fair to say rising yields are the water that lifts all figurative and literal ships.
Image source: Royal Caribbean.
Sailing away
This is the eighth year in a row Royal Caribbean ha come through with a late-summer dividend boost, a juicy sevenfold increase in that time. Carnival has also delivered five increases to its payouts over the past five years, doubling its rate in the process.
The distributions aren't guaranteed, given the cyclical nature of the industry. Royal Caribbean and Carnival suspended their dividends in 2008 during the global subprime crisis, and obviously it can happen again if the economy turns. With whiffs of a global recession still in the air, those two healthy yields are only as reliable as the appetite for sea travel.
Investing in cruise lines might not be cool at the moment, but the stocks are cheap -- and their businesses are expected to keep growing into the year ahead. Carnival, Royal Caribbean, and NCL may appear cheap, with trailing earnings multiples in the pre-teens, but they're outright bargains as their year-ahead ratios crack the floor into the single digits.
| Company | 2019 P/E | 2020 P/E | Yield |
|---|---|---|---|
| Carnival | 10.6 | 9.7 | 4.4% |
| Royal Caribbean | 11.2 | 10.1 | 2.9% |
| Norwegian Cruise Line | 10.2 | 9.1 | n/a |
Data source: Yahoo! Finance.
The industry isn't perfect. Carnival's latest quarter was disappointing. Revenue is still growing and future bookings remain on track, but the industry giant has lowered its full-year guidance in back-to-back quarters. Sluggish demand through Europe and Asia, sailing disruptions, and the U.S. government's policy change on Cuba as a port of call are weighing on the near term. Royal Caribbean and Norwegian Cruise Line are holding up marginally better, but it's important to note that the headwinds currently smacking the stocks should prove short-lived as geopolitical tensions ease and consumers warm up to the luxury and convenience of cruise travel. Right now, investors can grab any of the three publicly traded leaders at rock-bottom valuations. Big yields for two of the three players will reward patient investors, making this a good time to set sail on the industry.
