March 17, 2016: Bought 140 shares of STWD at $18.73 per share.
Founded in 2009 and headquartered in Greenwich, Connecticut, Starwood Property Trust Inc (NYSE:STWD) is the largest commercial mortgage REIT (real estate investment trust) in the United States. The company is focused on originating, investing in, financing and managing commercial mortgage loans and other commercial real estate debt investments, commercial mortgage-backed securities, and other commercial real estate-related debt investments.
STWD has a 7-year streak of consecutive dividend increases and pays quarterly dividends of 48¢ per share in the months of January, April, July and October. At my buy price, this equates to a yield of 10.25%, which is quite impressive!
I already own 110 shares of STWD, which I bought in January 2015 at a yield on cost (YoC) of 8.13%. Adding 140 shares at $18.73 per share reduces my cost basis to $20.88 and elevates average YoC to 9.20%.
Below is a chart showing my buy prices. STWD's share price has come under pressure lately, so I wanted to use the opportunity to reduce my cost basis by dollar-cost averaging down.
The drop in STWD's share price is pushing up yield, which is the most attractive aspect of this buy:
Founded in 2009 and headquartered in Greenwich, Connecticut, Starwood Property Trust Inc (NYSE:STWD) is the largest commercial mortgage REIT (real estate investment trust) in the United States. The company is focused on originating, investing in, financing and managing commercial mortgage loans and other commercial real estate debt investments, commercial mortgage-backed securities, and other commercial real estate-related debt investments.
STWD has a 7-year streak of consecutive dividend increases and pays quarterly dividends of 48¢ per share in the months of January, April, July and October. At my buy price, this equates to a yield of 10.25%, which is quite impressive!
I already own 110 shares of STWD, which I bought in January 2015 at a yield on cost (YoC) of 8.13%. Adding 140 shares at $18.73 per share reduces my cost basis to $20.88 and elevates average YoC to 9.20%.
Below is a chart showing my buy prices. STWD's share price has come under pressure lately, so I wanted to use the opportunity to reduce my cost basis by dollar-cost averaging down.
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The drop in STWD's share price is pushing up yield, which is the most attractive aspect of this buy:
REITs generally have very high yields since they are obliged to pay 90% of earnings in the form of dividends. However, if the yield goes up much over 10%, one should carefully consider the merits of share ownership. Why is the yield this high and is the dividend sustainable?
The valuations of many mortgage lending REITs have gone down based on fear that the Federal Reserve would significantly raise interest rates this year. Unfortunately, STWD suffered by association, even though STWD is a commercial mortgage REIT with most of its loan rates (84.5%) are tied to LIBOR. If market rates increase, STWD's commercial loan rates will also increase.
As far as dividend sustainability goes, I think STWD should be fine. The company reported solid earnings for Q4-2015 and for fiscal 2015. Earnings of 55¢ per share for the fourth quarter topped expectations by 12%. The company earned $186.22 million during the quarter, compared to analyst's expectations of $50.75 million. Revenue was up 4.1% on a year-over-year basis. Full year 2015 earnings was $2.19 per share.
The Chairman and CEO commented on an observed change in the real estate credit markets, with a widening of spreads and increased volatility due to a deterioration in high yield markets. As a result, the company consciously slowed the pace of capital deployment and will continue the cautious approach into 2016.
The cautious approach will impact profitability, according to the CEO, but it ensures stability in the long-term: "While undeployed cash is safe, it does not produce our target returns. Given our year to date activity and visibility into our investment pipeline, we are confident that we will generate core earnings in excess of our dividend and expect to maintain our $1.92 per share distribution for the full year."
So, based on the CEO's comments, it looks like STWD will at least be able to maintain its current quarterly dividend of 48¢ per share. We shall see...
Following is a table containing updated ratings of STWD from various sources:
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According to Tipranks, 4 analysts covering STWD have a Strong Buy rating and an average price target of $22.63. MarketBeat reports a consensus price target of $23.81 from 10 analysts, and a consensus Buy rating. At the lowest of these price targets, my buy price is discounted by 17%.
Thanks for reading! What do you think of STWD and its current yield of 10%?
It looks like cash flow has nearly doubled (from 326 to 613) for STWD since 2013. If anything their dividend should go up if they are required to pay 90% of that. What am I missing ? Thx
ReplyDeleteForgot to mention the link to Starwoods earnings looks broken.
DeleteI'm guessing the cost of growing those earnings nearly doubled, too. Thanks for pointing out he broken link. It is a PDF file that got cached when I clicked on the link. I copied the link now and it should work.
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