Braemar Hotels & Resorts: High-Yield Dividends or High-Risk Gambles?

Braemar Hotels & Resorts (BHR) has emerged as a magnet for income-focused investors, offering a dividend yield of 7.55%—a stark contrast to the broader market's paltry averages. Yet beneath this enticing surface lies a complex financial puzzle. With a dividend payout ratio of -173%, Braemar's ability to sustain its payouts hinges on strategic asset management and cash flow resilience. Is this a golden opportunity for yield seekers, or a precarious bet on a company's ability to juggle refinancing and real estate cycles?

Cash Flow Resilience: A Delicate Balance

Braemar's dividend sustainability is not rooted in profitability. Despite exceeding earnings expectations in Q1 2025, the company reported a net loss, relying instead on cash flow from operations to fund its $0.05 quarterly dividend. The cash flow coverage ratio of 32.2% suggests that operating cash alone cannot fully support dividends, meaning Braemar must turn to other levers: asset sales, debt refinancing, or preferred stock issuances.

Backtest the impact of BHR with Earnings Beat Expectations, from 2022 to now.", 'Rationale': "The article emphasizes Braemar's Q1 2025 earnings beat despite net losses, highlighting the disconnect between reported earnings and dividend sustainability. This backtest evaluates whether stocks showing similar earnings surprises (like BHR) exhibit consistent post-event performance, particularly in maintaining high yields under financial stress.

This reliance on external capital raises critical questions. The recent sale of the Hilton La Jolla Torrey Pines for ~$170 million in July 2024 provided a liquidity boost, but such transactions are neither recurring nor guaranteed. Investors must ask: Can Braemar repeat such asset sales in a cooling real estate market? And how will rising interest rates affect its refinancing costs?

Strategic Asset Management: A Double-Edged Sword

Braemar's strategy centers on a portfolio of luxury hotels, which are both its crown jewels and its vulnerabilities. The company's ability to monetize these assets—through sales, refinancing, or revenue growth—directly impacts dividend health.

While luxury hotels may command premium prices in strong economic climates, their demand is highly cyclical. A downturn in travel or a prolonged interest rate hike could squeeze occupancy rates and revenue, compounding Braemar's need to rely on asset sales to fund dividends. The company's Q1 2025 results hinted at operational strength, but this must be balanced against macroeconomic risks.

The Preferred Stock Conundrum

Braemar's capital structure further complicates the picture. Series E and M preferred shares, with monthly dividends ranging from $0.15625 to $0.17917 per share, account for a significant portion of its obligations. As of June 2025, over 14.8 million preferred shares were outstanding, absorbing cash that could otherwise support common stock dividends.

Investors in common stock must recognize that preferred shareholders have priority in dividend distributions. This structure amplifies the pressure on Braemar to generate sufficient cash flow to satisfy both tiers of investors—a tightrope act that demands flawless execution.

Risks on the Horizon

• Debt Repayment: Braemar's leverage ratios and refinancing needs are critical unknowns. If rising rates make debt servicing prohibitively expensive, dividends could be cut.
• Asset Liquidity: The luxury hotel market's volatility means asset sales might not occur at desired valuations, straining cash reserves.
• Earnings Volatility: Persistent net losses underscore the fragility of Braemar's earnings model, which depends on external capital for dividends.

Investment Considerations

Braemar presents a high-risk, high-reward scenario. The 7.55% yield is compelling, but investors must weigh it against:
1. Liquidity Needs: Monitor cash flow from operations and asset sale proceeds.
2. Debt Management: Track refinancing timelines and interest coverage ratios.
3. Economic Sensitivity: Luxury travel demand is a bellwether for Braemar's top-line growth.

For conservative investors, Braemar is a pass. However, those with a high-risk tolerance—particularly those focused on income—might consider a small position, paired with strict stop-loss rules.

Final Verdict

Braemar Hotels & Resorts is a company playing with fire. Its dividends are sustainable today, but only if the stars align: asset sales continue, refinancing costs stay manageable, and luxury travel demand holds firm. The 32.2% cash flow coverage and -173% payout ratio are flashing yellow lights—investors must decide whether the yield outweighs the risks. For now, Braemar remains a speculative bet on the resilience of its asset portfolio and the discipline of its capital management. Proceed with caution.