When picking the best hotel stocks to own, it helps to keep two things in mind. First, the lodging industry derives almost all of its revenue from business travel and tourism. Second, revenue from business travel and tourism rises and falls with the overall health of the economy.

When the economy slows down, businesses cut costs by reducing travel expenses and laying off employees. And when people lose their jobs, one of the first expenses they cut is vacation travel. When the stock market crashed in 2009, annual hotel revenue in the U.S. fell from $155 billion to $133 billion. It took five years for it to fully recover.

The opposite is also true. As the economy strengthens, companies hire more workers and have more money to send them on trips. They also pay them more, so those employees have more money to splurge on expensive vacations. By 2017, hotel revenue rose above $200 billion for the first time ever as the unemployment rate dropped to its lowest level in more than 10 years.

For that reason, we believe the best hotel stocks are those that do well under all sorts of economic conditions. Everyone would like to stay at one of the best hotels in the world, but very few people can afford to stay at the luxurious ones featured in this video:

How Do You Determine What Qualifies as the Best Hotel Stocks to Own in 2019?

The best hotel stocks to own generate strong cash flow with which to pay solid dividends. They also own properties across a broad spectrum of geographic markets.

Like all good companies, the best hotel stocks to own do not carry excessive debt. They have plenty of cash to see them through the occasional rough patch without having to cut their dividends.

In addition, the best hotel stocks to own have seasoned management teams that know how to acquire property to fuel future growth. As weaker rivals fail, they are able to scoop up desirable properties at bargain prices.

For all those reasons, for income investors we recommend owning hotel properties via a REIT, or real estate investment trust. In many respects, a REIT works like a mutual fund. The largest REITs own hundreds of properties all over the world. After paying their expenses, they must pay out at least 90% of their net income to avoid paying corporate income tax.

That means a REIT pays most of its profits to shareholders as a dividend. Many REITs offer a DRIP, or dividend reinvestment plan, to make it easy for you to buy more shares. Over time, investors can amass a small fortune by reinvesting REIT dividends.

Also see: “Top 3 Best Dividend Stocks to Own“

What are the Best Hotel Stocks to Own in 2019?

If you are in a hurry, below are our picks for the best hotel stocks to own.

1. Hospitality Properties Trust: Diversified REIT pays an 8% dividend yield that keeps going up.
2. Wyndham Hotels & Resorts: Largest hotel franchise operator in the world is investing for growth.
3. Marriott International: Starwood acquisition should reap big rewards in 2019.

Keep reading to find out more about each of the best hotel stocks to own.

Hospitality Properties Trust (NSDQ: HPT)

What is it?

Hospitality Properties Trust is a Boston-based REIT that owns hotels and travel centers located in North America. Its portfolio of hotel operators is led by Marriott, InterContinental Hotels, and Sonesta. At the end of 2018, HPT had $6.5 billion invested in 325 hotel properties.

In addition, HPT has $3.5 billion invested in 199 travel centers strategically located along major interstate highways. A travel center usually consists of a gas station, one or more fast food restaurants, a convenience store, and a truck repair facility.

Why is it one of the Best Hotel Stocks to Own in 2019?

HPT pays one of the safest dividends in the entire REIT universe. Nearly three-quarters of its rents are secured by either a deposit or guarantee from the operator. Leases are renewed for 15 to 25 years, with a weighted average remaining lease term of 15.1 years at the end of 2018. At the end of 2018, HPT paid a solid 8% dividend yield.

Last year, HPT raised its dividend payment by 4%. Steady increases like that add up over time, especially when reinvested into more shares of the company. We view HPT as not only one the best hotel stocks to own in 2019, but one you can own for many years to come without worrying about the ups and downs of the stock market.

Wyndham Hotels & Resorts (NYSE: WH)

What is it?

Unlike HPT, which specializes in properties only in North America, Wyndham has nearly 800,000 hotel rooms in 9,000 properties spread across more than 80 countries. That makes it the largest hotel franchise company in the world. In addition to the Wyndham name, its brands include La Quinta, Ramada, Days Inn, and Super 8.

Also unlike HPT, Wyndham pays a relatively modest dividend yield of closer to 2% even after doubling its dividend payment last year. Wyndham is a corporation, not a REIT. As such, it is not legally obligated to pay out at least 90% of its net income to avoid income taxation. Instead, it reinvests more of its cash flow into acquiring additional hotel properties.

Why is it one of the Best Hotel to Own in 2019?

The middle-class populations of China and India are growing rapidly. That means rising demand for vacation properties along with increased business travel. Wyndham is acquiring properties all over the world to cash in on these high growth markets.

We expect Wyndham’s profitability to take a big jump in 2019 for two reasons. The number of rooms booked via its mobile app grew by 75% last year, reducing sales costs. At the same time, its enhanced loyalty rewards program resulted in higher occupancy rates and longer stays. The combined effect of higher revenue and decreased costs should have a positive impact on Wyndham’s bottom line this year.

Marriott International (NSDQ: MAR)

What is it?

Since its humble origins as a root beer stand at the onset of the Great Depression, Marriott International has grown into one of the largest hotel operators in the world. Marriott operates nearly 7,000 properties in 130 countries. Its portfolio of 30 hotel brands includes Westin, Fairfield Inn & Suites, and Sheraton.

In 2016, Marriott acquired Starwood Hotels and Resorts for $13 billion to become the world’s largest hotel chain at the time. That transaction immediately expanded Marriott’s global footprint in China and Europe, to complement its strong base in North America.

Why is it one of the Best Hotel Stocks to Own in 2019?

Similar to Wyndham, Marriott is a corporation and not a REIT. It pays a modest dividend yield of a little under 2%. Most of its free cash flow is reinvested into upgrading its hotel properties.

Marriott’s investment in new properties and more attractive facilities should start to pay off in 2019. Marriott’s quarterly dividend payment has more than doubled over the past five years, and we believe Marriott will raise it again this year. With its share price well below its all-time high price, we think now is a good time to buy Marriott and enroll in its dividend reinvestment plan.

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