Ryman Hospitality Properties (RHP 0.09%) has been one of the best-performing stocks in the real estate sector despite a very difficult environment. The overall real estate sector has lagged the market recently with a total return of less than 8% since the start of 2023, compared with a 51% total return for Ryman.
Despite this stellar performance, this real estate investment trust, or REIT, still looks like an attractive investment opportunity. Its recent results have been remarkably strong. Just a few years after pausing its dividend during the COVID-19 pandemic, Ryman is rapidly becoming an excellent dividend growth stock, again.
In Ryman's fourth-quarter earnings report, management said the company intends to pay "aggregate minimum dividends for 2024 of $4.40 per share," which represents a 14% increase, compared with the $3.85 per share paid in 2023. Here's why Ryman could still be cheap despite its incredible stock performance.
Ryman's business is doing fantastic
Despite economic fears, inflationary pressures, and the rising interest-rate environment, demand for group hotels is as strong as ever. At Ryman's hotels, operating income in the fourth quarter was the highest it's ever been and could get even higher. In fact, Ryman's average daily rate (ADR) for future booked room nights was also at an all-time high and represented 8.5% year-over-year growth.
On the entertainment side of the business, which owns several iconic entertainment venues among other assets, 2023 operating income grew by 26%, compared to 2022. Ryman's overall revenue in the fourth quarter was its highest ever.
Plenty of growth potential ahead
It isn't just the recent results that look great. The company is investing heavily to take advantage of the high demand for group-focused hotels and in-person entertainment.
On the hospitality side, Ryman is investing heavily to enhance its properties (and their income potential). Through 2027, the company plans to spend more than $1.1 billion across its six hotels, with especially large projects at its flagship Gaylord Opryland, as well as the Gaylord Rockies and Texan properties. This includes room and convention-space expansions, new food and beverage outlets, additional amenities, and more.
The improvements will help fuel higher room rates, as well as more out-of-room spending. The latter is a key differentiator between Ryman and other hotel operators.
On the entertainment side, there are some exciting developments, as well. For one, Ryman opened the flagship location of its Ole Red dining and entertainment chain in January, so this isn't even included in the 2023 growth numbers. The new Ole Red is in a prime location on the Las Vegas Strip (directly across from the Bellagio fountains), and this concept could still have tons of nationwide growth potential.
There's also a large-scale entertainment complex called Category 10 under construction in Nashville that Ryman is developing in partnership with country superstar Luke Combs. It's expected to open later this year.
Still a cheap stock
Even though Ryman delivered a total return of more than 50% over the past 15 months, the gain is well-deserved and the company still looks attractive. Even at today's share price, it trades for less than 15 times its forward funds from operations (FFO -- the REIT equivalent of "earnings") guidance, a remarkably low valuation given the momentum of this REIT.
For income investors, it's also worth noting that even after a 14% dividend raise, Ryman's payout ratio is just 56% of the expected 2024 FFO, while most REITs pay out 70%-90%. So there could still be plenty of room for dividend growth.
