Prediction: This Dividend Stock Will Beat the Market Over the Next 5 Years

Globe and Mail

17 hours ago

Key Points
Unfazed by an uncertain environment, Marriott continues to steadily grow.
The lodging specialist's Marriott Bonvoy loyalty program is experiencing rapid growth.
With a handful of growth drivers, Marriott's growth story looks extremely durable.
10 stocks we like better than Marriott International ›
As investors all seem to be tripping over each other to buy into the momentum in artificial intelligence (AI) stocks, there are some good investment opportunities sitting in plain sight. One that is out of favor this year, with its shares down almost 7% year to date as of this writing, is hospitality company Marriott International (NASDAQ: MAR).
The company's second-quarter results showed growth in both revenue per available room (RevPAR) and total rooms available, leading to robust top and bottom-line growth. A powerful loyalty program and successful co-branded credit cards are driving results and creating an engaged customer base that can continue fueling growth for years to come.
Multiple key growth drivers
One of the biggest things Marriott has going for it is the breadth of its growth drivers. Sure, the business looks good on the surface. Second-quarter adjusted revenue (total revenue less cost reimbursement revenue) rose about 6% year over year to more than $1.8 billion, and adjusted earnings per share rose by the same amount. But the diversified sources of Marriott's growth strengthen the stock's bull case, capturing the durability of the company's growth story.
Consider the different ways the company is growing. First, there's the Marriott's net rooms growth. Management confirmed in its second-quarter update that it expected net rooms growth for the full year to approach 5%.
Second, the company benefits from an extremely fast-growing loyalty program. Second-quarter Marriott Bonvoy members totaled 248 million, up 18% year over year. This membership program is translating into tangible loyalty, with a record 69% of rooms booked globally during the quarter coming from Marriott Bonvoy members. The penetration was even more significant in the U.S. and Canada, where 74% of rooms booked were a part of the Marriott Bonvoy loyalty program.
Third, Marriott's co-branded credit card fees, another way the company encourages customer engagement and loyalty, continued to rise at a rate of about 10% year over year -- a figure management has said generally reflects strong increases in global card spend.
Also helping customer engagement, the company continues to make strategic partnerships with consumer-focused companies like Uber and Starbucks in an effort to deepen relationships with its members and capture a greater share of their wallet.
Given Marriott's significant effort invested in engaging its members, it's unsurprising that the company is experiencing not only growth in net rooms but also an increase in revenue per available room. Highlighting the company's pricing power even in an uncertain macroeconomic environment, RevPAR increased 1.5% worldwide in Q2.
A good dividend stock
Though Marriott isn't growing at a breakneck pace like many of Wall Street's AI darlings, it offers a durable growth story backed by a handful of catalysts with great momentum -- not to mention an iconic and globally known travel brand. In addition, the company is demonstrating its ability to grow even with a shaky macroeconomic backdrop.
Of course, investors will have to keep in mind the risks. First and foremost, any decline in global interest in traveling could adversely impact the company. Second, if the company's momentum in its loyalty program tapers off, investors could become convinced that Marriott's strategic efforts to enhance the program may have its highest-impact days in the rearview mirror.
But the stock's reasonable price-to-earnings ratio in the high twenties seems fair, even with these risks in mind. Additionally, there's a lot to like about the company's capital return program. Marriott has a practice of returning excess capital to shareholders through a dividend, which has steadily grown over time, and share repurchases. Indeed, Marriott said in its second-quarter update that it was on track to return about $4 billion (about 6% of its current market capitalization) to shareholders via repurchases and dividends during 2025.
Considering the company's diversified growth drivers, its dividend yield of more than 1%, a meaningful share repurchase program, and a reasonable valuation, Marriott looks like a good dividend stock for investors to add to their portfolios. Even more, the stock could outperform the market over the long haul -- especially if many of today's hyped-up AI stocks see their valuations come down in the coming years, weighing on the overall market's returns.
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Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Starbucks and Uber Technologies. The Motley Fool recommends Marriott International. The Motley Fool has a disclosure policy.