Purchased Hilton Hotels in Anticipation of a 3 for 1 Stock Spin-Off

posted Feb 28, 2017, 2:06 PM by Intelligent Investor   [ updated Aug 2, 2019, 3:59 PM ]
Last December I purchased Hilton Hotels in anticipation of a 3 for 1 stock spin-off. In other words, Hilton Hotels will be splitting into 3 independent companies. The most undervalued part of their business is their timeshare operation, Hilton Grand Vacations.

You must own the stock by December 15, 2016 to take part in the stock spin-off.

Hilton Hotels split into the following 3 independent companies:
1) Hilton Worldwide Holdings (HLT)
2) Hilton Grand Vacations (HGV)
3) Park Hotels and Resorts (PK)

Hilton Grand Vacation (HGV), which is the crown jewel of Hilton Hotels, is only trading at a P/E Ratio of 12 right after the spin-off. Compare that to Marriott Vacations' (VAC) P/E Ratio of 20, HGV looks like a clear bargain with plenty of upside. HGV's Return on Assets is at around 9% whereas VAC is at around 6%. HGV is getting a much better return on their assets when compared to VAC.

Park Hotels and Resorts (PK) becomes a Real Estate Investment Trust (REIT). It is the parent company of the Waldorf Astoria, an ultra-luxury resort and hotel chain. After the split they announced a quarterly dividend of $0.43 cents which come out to $1.72 per year. Using the after-split price of $30 per share, that would give us a return of 5.5%. Bonds are currently averaging at around 3.5%. Thus, PK is a good place to park our money while we wait for a great investment to purchase. Once we find a great investment to purchase, we will sell PK in exchange for that great investment.

As for Hilton Worldwide Holdings (HLT), I think it is a decent investment. It isn't great, only decent. I'll just keep it until I find something better.