Best Dividend Stocks: Royal Caribbean Cruises Ltd (NYSE:RCL)

While only in the eighth year of a consecutive annual dividend hikes streak, Royal Caribbean Cruises Ltd. (NYSE: RCL) offers investors double-digit and triple-digit total returns in line with other best dividend stocks.

Royal Caribbean began dividend distributions in 1993. However, facing rough seas in the aftermath of the 2008 financial storm, the company had to cease dividend distribution after its last payout in 2008. The company’s share price also suffered a steep decline during that period. During 2008, the share price lost nearly 85% of its value before bottoming out in mid-November.

However, the share price embarked on its current long-term uptrend right away and Royal Caribbean reinstituted dividend payouts in August 2011. Since hitting its all-time low in March 2009, the share price has advanced more than 22-fold. Also, the annualized dividend distribution amount rose seven-fold since Royal Caribbean resumed dividend distributions in 2011.

Royal Caribbean Cruises Ltd. (NYSE:RCL)

Headquartered in Miami, Florida, and founded in 1969, Royal Caribbean Cruises Ltd. operates cruises under six distinctive brands — Royal Caribbean International, Celebrity Cruises, Silversea Cruises, TUI Cruises, Pullmantur Cruises and Azamara Club Cruises. While Royal Caribbean owns four of the brands completely, the company only has a 49% shareholder stake in the Spanish brand Pullmantur Cruceros and own 50% of the German brand TUI through a joint venture. As of May 2019, the company operated 61 ships across all six brands, with 15 additional vessels on order and currently under various stages of development and construction. The cruise line’s itineraries range from two to 23 nights for approximately 540 destinations on seven continents. Additionally, RCL has an ownership stake in SkySea, which is a joint venture with Ctrip.com — a pioneer and leader in the online travel world. Established in 2015, SkySea currently has one vessel and sails regular itineraries from Shanghai, China.

Best Dividend Stocks: Royal Caribbean Cruises Dividend

Royal Caribbean will pay a $0.70 quarterly dividend distribution again for the next round of dividend distributions. This current quarterly payout amount is nearly 17% higher than the $0.60 payout one year ago and corresponds to a $2.80 annualized payout for 2019. However, based on the timing of dividend hikes over the past few years, the company will probably boost its quarterly payout amount for the last distribution of the year. Investors should look for a dividend declaration in early September to announce a new quarterly dividend most likely around $0.80, as well as a mid-September ex-dividend date and an early-October pay date.

However, the current annualized amount converts to a 2.3% forward dividend yield, which is more than 14% above the company’s own 1.97% average dividend yield over the past five years. Furthermore, the current 2.3% dividend yield is also nearly 8% higher than the 2.12% simple average yield of the overall Services sector, as well as 11% higher than the average yield of Royal Caribbean’s publicly-traded cruise line peers.

Since re-instituting dividend distributions in 2011, Royal Caribbean has boosted its annual dividend amount seven-fold over the past eight consecutive years. This dividend advancement pace corresponds to an average growth rate of 6.3% each quarter, or 27.5% per year.

Because the rapid dividend growth is one of the main reasons for considering Royal Caribbean one of the best dividend stocks, some investors might question the sustainability of the current growth streak. However, the company’s current dividend payout of 32% indicates that Royal Caribbean uses less than one third of its current earnings to cover dividend distributions.

Furthermore, the current dividend payout ratio level is just slightly above the 30% lower limit of what investors generally consider a sustainable payout ratio. The upper limit of this sustainable dividend payout ratio range is 50%. Therefore, even if Royal Caribbean must increase its payout ratio to cover its dividend boosts in the near future, there is still enough room for sustainable growth. Moreover, the current ratio of 32% is actually slightly lower than the company’s own 35% average payout ratio over the past five years. This relationship indicates that the company’s earnings have increased faster than its dividend distributions over the last five years. This further reinforces the confidence that Royal Caribbean should be able to continue supporting its current pace of dividend boosts and remain one of the best dividend stocks.

Best Dividend Stocks: Royal Caribbean Cruises Share Price

After losing more than 23% of its value in the first half of 2018, the share price entered the trailing 12-month period on a positive trend and rose more the 16% to reach its 52-week high of $132.14 in the first 90 days. Immediately after peaking in mid-September, the share price shed all those gains and fell to its 52-week low of $89.48 on December 24, 2018, which was 21% lower than the share price from the onset of the trailing 12 months.

However, the share price performed another direction reversal and has been rising since late-December 2018 with only occasional fluctuations. The share price closed at the end of trading on June 14, 2019, at $124.13 — just 6% short of the September peak. Additionally, the June 14 closing price marked a 9.4% gain over the past 12 months and a jump of nearly 39% above the 52-week low on Christmas Eve. Over the past five years, the share price advanced 120%.

Some equities might deliver high dividend income but suffer declining share prices. However, the best dividend stocks will offer investors a balanced approach that delivers various level of combined benefit and strong total returns on shareholders’ investment. Royal Caribbean certainly delivered robust combined returns over the past several years. The company’s combined total return just over the past 12 months was nearly 12%. Over the past three years shareholders received a 78% total return. Lastly, the shareholders enjoyed a total return of nearly 150% over the past five years.

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