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AMERICA'S HOTELIERS ARE losing sleep. They've raised prices 3% this year, but only because their electricity bills have swollen, not because demand is firm. Occupancy is down 4.5% from a year ago, says Smith Travel Research, an industry data seller. Barely two-thirds of rooms are full. Revenue per available room — revpar to Wall Street's diviners — has fallen 1.7%. The room count is still growing.

That's good news for travelers holding out for price cuts later in the year and more cause for grief among hotel investors. Big chains have lost a third of their share value in a year.

Among the fallen, U.K.-based InterContinental Hotels Group (IHG) seems worth a look for investors seeking dividends, or those just looking for underpriced shares. It turned up recently on our Not Just Income screen, which looks for companies whose dividend appeal is matched by their potential for stock gains. (Have a look if you like at all eight companies that made the cut, or run the search anytime using SmartMoney's stock screener and the list of criteria.)

InterContinental operates a chain that bears its name, along with Crowne Plaza, Holiday Inn and others. In all, it has seven brands with 4,000 hotels in nearly 100 countries. Sales are on pace to hit $2 billion this year — about 15% of Marriott International's (MAR) likely take.

Shares of InterContinental have doubled in price since their April 2003 debut and doubled the broad market's gain. While the company's stock chart has turned grim this year, its income statement hasn't. Adjusted for currency shifts, first-half sales from continuing operations rose 9%. Earnings before interest and tax increased 17%. Adjusted earnings per share jumped 28%. Even revpar improved 4%.

The company cleared $280 million in free cash during the quarter, up from $152 million a year earlier. The money paid for $86 million in dividends and more than $130 million in share repurchases. A slight bump up of the dividend rate brings the stock's yield to 4.4%.

Considering the weak industry trends, InterContinental seems aggressive in its expansion effort. It added more than 13,000 rooms in the first half, net of closings. That's nearly twice as many as a year ago and four times as many as the year before that. It hopes to gradually become more of a hotel franchisor and less an owner. That plan seems to have stalled, with franchise fee flat at around 5.5% of total sales. Analysts suspect tight credit is hampering potential franchisees.

The fast expansion increases InterContinental's risk of a worsening or exporting of America's booking woes. The shift to more franchise fees decreases its risk of the same. Analysts expect conditions to sour. They anticipate just 9% earnings per share growth for the company this year and less next year. Shares, though, seem amply discounted for the slowdown at less than 13 times this year's earnings forecast. An industry rebound, when it occurs, ought to favor InterContinental over, say, Marriott, whose shares fetch 15 times earnings, and whose profits are expected to shrink this year.

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