To be sure, hotels are not usually the go-to sector for yield seekers. Utilities and many consumer staples stocks traditionally offer rich dividends and indeed these sectors have led the market’s advance this year. Considering that Treasury note and bond yields dipped to record lows earlier this month, the advantages offered by these sectors are even starker.
But with utilities and consumer staples indexes well above their 200-day moving averages these groups are a bit extended to the upside. In contrast, the Dow Jones U.S. Hotels Index recently broke through its declining trendline from April 2015 to the upside (see Chart 1). It quickly shook off the Brexit selloff and the on-balance volume indicator has been rising all year.
On-balance volume serves as a proxy for money flowing into or out of a stock or index. When prices pull back and on-balance volume continues to rise as it did earlier this year for the hotels index we get a good indication that the rally is going to continue.
Individual hotel stocks such as Marriott International (ticker: MARMAR 0.5989731888191672%Marriott International Inc. U.S.: Nasdaq USD70.54 0.42 0.5989731888191672% /Date(1468529710883-0500)/ Volume (Delayed 15m) : 1915851 P/E Ratio 21.547197460007325 Market Cap17826748161.6479 Dividend Yield 1.7001983564749221% Rev. per Employee 115624 More quote details and news » ) and Hyatt Hotels ( H)H -0.8209538702111024%Hyatt Hotels Corp. U.S.: NYSEUSD50.74 -0.42 -0.8209538702111024% /Date(1468529717790-0500)/ Volume (Delayed 15m) :274581 P/E Ratio 52.94484911550468 Market Cap 6874469556.97775 Dividend Yield N/A Rev. per Employee 96955.6 More quote details and news » have similar charts but offer only ordinary dividend yields. Hotel REITs, however, can offer both solid chart patterns and big income.
RLJ Lodging ( RLJRLJ 0.22192632046160674%RLJ Lodging Trust U.S.: NYSE USD22.58 0.050.22192632046160674% /Date(1468529710340-0500)/ Volume (Delayed 15m) : 691258 P/E Ratio15.313303559344972 Market Cap 2811901777.82158 Dividend Yield 5.832965090587716% Rev. per Employee 20137600 More quote details and news » ), operator of various properties branded by Marriott, Hilton Worldwide ( HLTHLT 0.4657070279424217%Hilton Worldwide Holdings Inc. U.S.: NYSE USD23.73 0.11 0.4657070279424217% /Date(1468529718943-0500)/ Volume (Delayed 15m) :2330504 P/E Ratio 15.127388535031848 Market Cap 23378321117.5116 Dividend Yield1.1789473684210525% Rev. per Employee 69652.4 More quote details and news » ) and Hyatt, recently broke out from its five-month slide with big volume (see Chart 2). At the same time it moved above its 200-day average for the first time in a year.
What I like about the chart is that on-balance volume is now at new highs for the year even though price has not done the same. However, a new high in price would add another technical breakout to the list and a big 5.9% dividend yield makes it look quite attractive.
Pebblebrook Hotel Trust ( PEBPEB -0.503235082674335%Pebblebrook Hotel Trust U.S.: NYSEUSD27.68 -0.14 -0.503235082674335% /Date(1468529719537-0500)/ Volume (Delayed 15m) : 859472P/E Ratio 27.235294117647058 Market Cap 2004653500.65369 Dividend Yield 5.471562275017998%Rev. per Employee 29991600 More quote details and news » ) is another owner and operator of various hotel properties across the country. Its chart is similar to RLJ’s above but it has not yet broken out. It is, however, bumping up against resistance at its 200-day average while on-balance volume is climbing at a fast clip (see Chart 3). If it can break out to the upside it would have a clear path towards a double-digit percentage gain based on the size of its 2016 trading range.
Diamondrock Hospitality ( DRHDRH -0.16146393972012918%Diamondrock Hospitality Co. U.S.: NYSE USD9.275 -0.015 -0.16146393972012918% /Date(1468529719576-0500)/ Volume (Delayed 15m) : 1934549 P/E Ratio 20.710455764075068 Market Cap 1865840697.90482 Dividend Yield5.393743257820928% Rev. per Employee 35966800 More quote details and news » ) has nearly an identical setup despite being down significantly in Wednesday trading.
Finally, Chesapeake Lodging ( CHSPCHSP -0.4506349856616141%Chesapeake Lodging Trust U.S.: NYSE USD24.3 -0.11 -0.4506349856616141% /Date(1468529703692-0500)/ Volume (Delayed 15m) :149679 P/E Ratio 21.741071428571427 Market Cap 1466650421.8927 Dividend Yield6.570841889117043% Rev. per Employee 51089200 More quote details and news » ) is a bit behind its peers technically but still shows a fledging breakout above its 18-month trendline and a rising trend in on-balance volume (see Chart 4).
Some hotel REITs are also deep into their rallies but that adds to the argument that the laggards have the wind at their backs. The only requirement is that candidates already show a little moxie with early breakouts and positive inflows of money.
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Michael Kahn, a longtime columnist for Barrons.com, comments on technical analysis atwww.twitter.com/mnkahn. A former Chief Technical Analyst for BridgeNews and former director for the Market Technicians Association, Kahn has written three books about technical analysis.