Imagine going back in time and trying to explain to someone all the ways that the internet has changed our lives. It would be nearly impossible to detail the huge quantity of data, services and opportunities that the simple invention of the internet has provided us.
The internet has also opened up a range of possibilities for companies to profit from delivering superior services to consumers. One of the best, and possibly the most undervalued, is the service provided by online accommodation and flight booking providers.
I can’t imagine trying to figure out where to stay in a foreign city or country without the ability to check out guest reviews and easily compare the prices offered by various providers.
In Australia, one of the major players is Wotif Holdings Limited (ASX: WTF). Wotif owns the Wotif.com, lastminute.com.au, travel.com.au, Asia Web Direct, LateStays.com and GoDo.com.au brands in Australia, New Zealand and Asian markets. The websites compete with major international players, but Wotif has managed to maintain its 25% slice of the Australian market.
The great thing about internet-based companies, particularly those with no physical store presence, is that they can pay out the majority of profit as dividends due to having lower fixed costs. Wotif’s payout ratio has consistently been above 90% of profit and is expected to result in a dividend yield of 7.3% fully franked in the 2015 financial year. When grossed up for the credits, this amounts to a huge 10.5% yield before tax!
Time to buy
The best investors always buy when stocks are out of favour. Right now that sums Wotif up pretty well, as investors are concerned that growth will be harder to come by in future years. I think it’s been oversold and the recent investment in IT, marketing and staff training will provide superior returns over the long run.
Motley Fool contributor Andrew Mudie does not own shares in any companies mentioned. You can find Andrew on Twitter @andrewmudie