1 Top Dividend Stock to Buy and Hold Forever

When it reported its third-quarter results earlier this week, Marriott International (NASDAQ: MAR) gave investors another glimpse into a business that continues to steadily compound while handing out quarterly cash payments to shareholders and spending even more on share repurchases. The world's largest hotel company posted modest growth in revenue per available room (RevPAR) worldwide. What mattered most, however, was where the strength showed up -- and what that says about cash generation going forward.

And while the stock doesn't boast a high dividend yield, the economics and durability of its business create a good backdrop for robust dividend growth over the long haul.

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Luxury strength, steady fee growth

Overall, fundamentals have been resilient as travel demand normalizes from its post-pandemic surge. Indeed, despite facing both a period of normalization and an uncertain macroeconomic backdrop, Marriott continues to perform well. Sure, you can see some softness in pockets. But strength in luxury is making up for those areas of weakness, capturing the dynamic resilience of Marriott's model.

Third-quarter comparable RevPAR increased slightly worldwide, with international markets up and the U.S. and Canada down a touch. But the mix of bookings skewed favorably as luxury outperformed. That matters for Marriott because higher-rate nights translate into stronger base and incentive fees across its managed properties.

"Globally, our luxury hotels continued to outperform, driven by robust demand and strong rate performance," CEO Anthony Capuano said in the company's third-quarter news release.

The impact of its strength in luxury is showing up in franchise fees. Base management and franchise fees rose nearly 6% year over year in the quarter, aided by rooms growth and healthy co-branded credit card economics (Marriott uses co-branded credit cards to encourage members of its loyalty program, Marriott Bonvoy, to be more engaged).

Marriott also highlighted record development signings, a pipeline near 3,900 properties (more than 596,000 rooms), and net rooms growth tracking to about 5% for 2025 -- all factors that will be key drivers of recurring fee growth in the years ahead.

All of this is leading to impressive financial results. Marriott's adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) reached roughly $1.35 billion. This is up 10% year over year, underscoring the margin power of Marriott's asset-light approach even when global RevPar is barely increasing.

Of course, there are still pockets of softness. Government travel in the U.S. and Canada has weighed on select-service (hotels brands that offer essential services without the high prices associated with luxury resorts) demand, and the company's 2025 RevPAR outlook remains conservative at 1.5% to 2.5% as the industry works through a challenging macroeconomic backdrop. But international strength and luxury resilience are offsetting factors -- and they are helping bolster Marriott's high-margin gross fee revenue.

Capital returns and a dividend built to last

Marriott's dividend alone won't wow income seekers. The stock's dividend yield currently stands at just 1%. But its growth potential -- and the way it's paired with buybacks -- is the point.

Through Oct. 30, the company has returned about $3.1 billion to shareholders through a combination of repurchases and dividends, and expects this figure to rise to $4.0 billion by the end of the year. This isn't bad for a company with a market capitalization of less than $75 billion as of this writing.

Setting the stage for growth in cash flow over time to support its dividend payments, Marriott added about 17,900 net rooms in the quarter, with conversions (when existing hotels get rebranded into a Marriott hotel via a franchise agreement) accounting for a meaningful share of signings and openings -- a capital-light way to expand its footprint while meeting owners' needs. Over time, more rooms mean more fee revenue and more cash to recycle into dividends and buybacks.

Further, not only does the company's history of dividend growth show that the company's ability to raise its dividend over time (today's quarterly dividend of $0.67 is up from $0.48 pre-COVID-19 pandemic) but the company has a low payout ratio of just 29%. This means there's plenty of room to grow the dividend even if earnings stay at current levels.

Of course, not everything about the Marriott story is perfect. Today's slower U.S. backdrop, especially in lower chain scales, could persist longer than management assumes. Additionally, international travel could contract if geopolitical conflict increases. Finally, even management's guidance is arguably somewhat conservative, reflecting real uncertainty in both the U.S. and the world.

Still, Marriott's lucrative fee-based model, global scale, and the outsized contribution from luxury give it room to navigate bumps. And with a record development pipeline, today's signings are tomorrow's recurring fees.

For long-term investors who value reliability and dividend growth potential, Marriott stock is a good choice. Not only is the stock trading at a reasonable valuation of just 23 times forward earnings, but its business model and global brand equity enable long-term growth in rooms, fees, dividends, and -- ultimately -- total shareholder return.

Daniel Sparks and his client have no position in any of the stocks mentioned. The Motley Fool recommends Marriott International. The Motley Fool has a disclosure policy.