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This Huge Hotel Chain With a Nifty Business Model Aims to Get a lot Huger

By Malcolm Stacey | Tuesday 23 October 2018

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Hello, Share Shunters. It is a source of continuing wonder to me that so many hotels exist. Why do huge armies of people feel the need to leave their comfortable homes to stay in featureless boxes, often in strange and unattractive places, all the time? Never mind, they do and that often makes hotel chains a worthy investment.

The most promising hotel enterprises offer something different. In the past, most people have searched for the cheapest accommodation. But in my own case, I’m fed up with that now and now seek a bit of luxury in my old age. I rather think a lot of fellow oldies, a big wedge of the tourist trade, feel the same.

InterContinental Hotels Group (IHG) doesn't offer the cheapest beds, but it's not going to scald you with its prices. And, to be on the safe side, they do have a budget chain called Holiday Inn Express. As far as business models are concerned, InterContinental has its own hotels but it also manages others by way of a franchise system.

So it keeps its property ownership down, cutting expenses. It also saves cash by sharing booking systems with its own hotels and those who sign up to the franchise.

The company has hotels in China and America, both growing markets. Business has been so perky that special dividends to the total value of $500 million are to be paid in 2019. The prospective yield is not brill though at 2.4%. So not one for hunters of ordinary dividends, perhaps, but a company which seems to be expanding fast. For example, 19,000 new rooms were opened in the first three months of 2018. Many more are on the way. The room total at present is 825,746. Gosh!

And now let’s see if there’s room for us in the Punter’s Return.

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