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Two dividend plays in the travel sector

Looking for alternatives to a term deposit? Here are two ideas from the travel sector, offering both the chance for income and long-term capital appreciation.

The first offers a 4.6% fully franked dividend, while the second offers a near 3% fully franked dividend attached to a high quality holding for your portfolio.

Idea #1: Wotif.com 

Shares of Wotif.com Holdings Limited (ASX: WTF) have languished year to date, rising just 4% versus a corresponding 13% rise in the S&P/ASX 200 index (Index: ^AXJO) (ASX: XJO). This is in part attributable to impacts from the Aussie dollar — when it was high, just weeks ago, the market wasn’t very excited about Wotif’s primarily domestic travel business.

Wotif.com is Australia’s most visited online travel agency, according to Hitwise, and sells one out of every 10 hotel bookings domestically — including nearly 2 million such bookings and 3.5 million total room nights sold in the most recent half.

Now, with the Aussie dollar lower, this company’s prospects look a bit brighter, and the company has a new CEO at the wheel as well, Scott Blume, who has previously worked in senior leadership roles with Traveland and Travelocity/Zuji Asia Pacific. Additionally, Wotif.com has an enviable balance sheet, with little debt and $150 million in cash. Shares trade for 20 times trailing earnings, or on EV to EBITDA basis of 12.8.

Income-oriented investors will be pleased to note the shares also pay a dividend in the 4.6% range, fully franked.

Idea #2: Flight Centre

While Flight Centre Limited (ASX: FLT) doesn’t currently offer a dividend as high as Wotif.com’s, the shares could still make an excellent long term holding. With the strength of its management team and long experience in the sector, Flight Centre may be one to book.

That’s because this longtime stalwart of the travel business boasts strong brand awareness and market share in its core markets, Australia and the UK, and a growing presence in both the U.S. and China. As evidence, on the strength of these prospects, Flight Centre recently raised its full year profit guidance from between $305 and $315 million to between $325 and $340 million.

Currently, Flight Centre shares trade for 19 times earnings and on an EV to EBITDA basis of 9.6. The shares pay a fully franked dividend is in the range of 3%.

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Motley Fool contributor Catherine Baab-Muguira has no financial interest in any of the companies mentioned in this article. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

 

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